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When you run a business, it’s a good idea to separate your personal and company accounts.
Having a separate business account can be useful for tax and audit purposes. If all your money is in one place, it can be tricky to figure out your business expenses and cash flow.
But do you really need a business bank account?
Not every type of business must have a business bank account.
As a sole proprietor or freelancer, you aren’t obligated to create a business account. That said, while it may not be necessary, it’s considered good business practice to keep a separate account.
The IRS recommends setting up a business bank account since it makes filing taxes simpler.¹
One case where you do need a business bank account, is to open a merchant account. Personal checking accounts will not be accepted, regardless of whether you are an LLC or corporation.
Without a merchant account, your business cannot process card payments. This makes merchant accounts particularly important for online products and services, as well as e-commerce businesses.
If you’re looking to get a business loan, then a business account may speed up the approval process. The loan provider will review the business cash flow and income, which is clearer with a business account.
Owners of limited liability companies (LLC) don’t have a legal obligation to open a business bank account.²
Regardless, there are reasons why it might make sense for LLC owners to set one up.
Owning a separate business account can help maintain a professional image for the LLC. It can also protect the owner’s personal assets. For example, in case of a legal dispute in which another party is looking for financial compensation from the business.
Sole proprietors aren’t legally required to own a business bank account. Yet, to reiterate, it’s a good idea to keep finances separate.
If only for making it easy to manage personal and business funds, it’s often worth it for sole proprietors to set up a business account.
|🔍 Read on to find out:
A business checking account is intended for business owners. It serves as a way of differentiating business and personal finances. Opening an account can save you time and energy when tax filing season comes around, or if you’re ever audited.
When you open a business checking account, you can also see if it is compatible with your accounting software. Many business accounts allow users to connect to software such as QuickBooks, or Xero. This can save hours on admin when it comes to tracking finances and sending invoices.
Here are some other benefits:
- Easily track down business transactions and expenses;
- Calculate tax deductions correctly;
- Access to business credit cards;
- Receive payments via credit and debit cards.
To open a business bank account, you’ll need to gather the following documents, certificates, and statements:
- Employer Identification Number (EIN);
- State-issued identification;
- Business formation documents;
- Ownership agreements;
- Business license;
- Certificate of Assumed Name;
- Monthly credit card revenue.
|🔍 You can also read the full guide to opening a business account for more information.
To choose the right business bank account, there are various factors worth considering.
To assist you in the search for the business account that makes the most sense for you, here are some factors to look out for:
While some business accounts require monthly fees or opening deposits, others may not.
As such, it’s important to determine what’s best for your business.
Can you handle ongoing fees, or would you prefer to have an account that’s free to set up and/or maintain?
Transaction limits can get in the way of your business needs in some cases, so make sure you read the fine print. Some banks will offer some fee-free transactions before charging per transaction. Others allow unlimited fee-free transactions.
While it’s rare to find a business account that allows you to earn interest on your income, they do exist.
For interest-accruing accounts, though, there will likely be a minimum opening deposit requirement.
If you require 24/7 customer support, then make it a priority when you look for a business account. Otherwise, find an account that’s supported with the form of communication you’re most comfortable with.
|🔍 Discover the best online bank accounts, and see which one is the best fit for your business.
If you’ve found the answer to ‘do I need a business bank account?’ is yes, then you’ll want to find a great business account next.
Set up a Wise Business account for free in the US and the world will be your oyster.
Wise Business is not a bank, but a smart online banking alternative. With the World’s most international account, you can do business around the globe with ease. Send and receive payments at the real mid-market rate, and easily add your Wise account details to your QuickBooks invoices to get paid faster - no matter the currency.
From a legal perspective, it might be that you don’t need a business bank account. Yet, from a tax and accounting point of view, it’s a wise choice to keep your personal and business finances separate.
All sources checked January 20, 2022.
This publication is provided for general information purposes and does not constitute legal, tax or other professional advice from Wise Payments Limited or its subsidiaries and its affiliates, and it is not intended as a substitute for obtaining advice from a financial advisor or any other professional.
We make no representations, warranties or guarantees, whether expressed or implied, that the content in the publication is accurate, complete or up to date.
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