5 Reasons Not to Mix Personal and Small Business Banking

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One of the basics of small business banking is to set-up a business bank account. This fundamental business function is often lost with new and part-time business co-mingling personal and business funds. Using a personal bank account for small business banking is common among part-time business like multi-level marketing and self-employed sole-proprietors such as realtors and consultants.

Frequently, business owners try to process business transactions through their personal bank accounts in an effort to reduce expenses and bank fees.

Unwittingly, they may be creating potential problems for the business in the future. 

Not convinced that you should keep your personal and small business banking separate? Here are five reasons.

1. Hobby Business Classification

IRS rules stipulate that only businesses can deduct business expenses. While there are specific guidelines for determining whether an entity is a business or a hobby, If your business goes through your personal account you may be giving the impression that this is a hobby (a personal bank account for business creates a harder time convincing the government you are operating a business).

2. Tax Time Nightmare

When it comes time to declare income and expenses from the business, personal transactions will have to be separated from business transactions. It will be a nightmare and time burden going through all transactions and figuring out business from personal.

3. Limited Audit Trail

While the government doesn't require you to have a specific record keeping method or separate bank account, it does require that whatever method you use, that all records be accurate, complete, permanent and show a clear record of income and deductions.

Providing a separate business statement and record provides a clear audit trail.

4. Missed Deductions

Co-mingling your small business banking with personal creates a mess of transactions on your account statement. It is easy to overlook or miss deductions you may be entitled to. Whether you or an accountant will be preparing the tax return, messy record keeping will cost more in time, money, and possible missed deductions.

5. Lack of Professionalism

If you have clients who write checks to you, check writing in your personal name as opposed to business can convey that your company is a part-time or less-than-serious venture. Even if your business is part-time, take it seriously and your clients will, too.

Take the time to open a small business banking account to simplify your record keeping and life. Shop around for the best deal. Small business banking varies in fees and features. The costs of a business account are far less than the benefits to your business. Fees are partly tax deductible as an expense. Don't forget to consider that your business may grow. Opening a business account with a bank earlier can help with required financing in the future. Remember run your business as a business.

Edited by Alyssa Gregory