I operate as a sole-proprietership. (1099s and self-reported income). For all my life freelancing, I’ve always kept my personal and business finances mixed in the same checking account.
For the next year, I may want to split accounts to easier keep track of costs and accounting purposes. I have two accounts at two different banks. They are both personal accounts. What are the main difference between having a business account and a personal account? Is there an advantage to having an explicit business account vs. just using my secondary personal checking account as one?
The bank that I worked at had a deal for businesses where the checking account would always have just a small amount in it. Most of the money would sit in an interest-bearing account, and every time a check was written the bank would transfer over enough to cover it. For us plebs, they charge you $4 a pop and call it an “overdraft” account. The businesses we worked with got it for free. There may be other perks. Ask around.
The main difference is that a bank will often charge extra fees for a business account: a charge per check, a charge per deposit, a charge for each item in a deposit, etc.
However, it’s a good idea to have separate accounts. It makes bookkeeping easier and can help with taxes. But there’s no reason you can’t open a second personal account to do this.
This seems to be the best solution for me, at the moment. I already do have two personal accounts – one active and one just sitting there doing nothing. I called one of my banks, and they basically said their small business checking accounts and personal accounts are exactly the same, save that the small business accounts will accept checks in the company’s name (provided it’s registered, of course) and – well – that’s about it. You also need to keep a higher daily balance. So, for my purposes, it seems keeping a second personal account is best.
I have a naive question – why are two counts easier to manage than one? Assuming you keep track of everything electronically, isn’t it just as easy to separate categories in Quicken/Money/Excel whether you have one or two or n accounts? Virtually speaking, it’s the same quantity of data with a different description, i.e., “$10 into account 1” and “25 out of account 2" and "my net worth is -15” is no different than “$10 into account 1 LABEL=business” and “25 out of account 1 LABEL=personal" and "net worth=-15”
Managing through Quicken is probably about the same; it’s just that some folks may prefer the clean-ness of keeping separate bank statements for personal vs. business, especially for tax purposes, to avoid reconciling mixed stuff.
For an individual proprietor it’s easier, but if you have multiple people in the household spending out of the account, it might make more sense to have separate accounts.
Many banks [most?] have policies prohibiting you from using a personal account for business transactions, and vice versa.
There are some regulatory factors behind this.
??? How so? I’m a photographer. I would just be putting my income into this account and paying all business expenses (travel, equipment, repair, insurance, etc.) out of the account. Why the hell would the bank care if I’m using a personal or business account as a sole proprietor? In fact, most freelance photographers I know don’t keep separate accounts.
As for why it’s easier to keep to accounts, it’s just cleaner accounting for me. I don’t use Quicken or Money or even Excel (I just keep a running tab of what’s going in and out on paper, although I will probably change that next year to save myself the pre-April 15 hassle of catching up on a year’s worth of accounting in one week and missing expense deductions. It’s just that since I’ve got into a new line of photography, business has ramped up significantly and my sloppy habits won’t work well.)
So, yeah, it’s simply easier for me to look in a separate account, and see how much is going in and coming out, and knowing all those expenses need to be accounted for come tax time, knowing exactly what my income should be. Basically, it’s a way to double check my work.
They wrote guidelines for a deposit account intended to be used as a personal account.
They won’t be complying with their internal policies if they knowingly let you use that account for business transactions. Not following internal policies could get them a slap on the hand from their regulators, of whom they’re deathly afraid.
You may also be skirting their established fee structure and essentially (from their perspective) cheat them out of fees by means of violating the terms and conditions of your account agreement. Every account agreement I’ve ever seen limited the account to either personal or business uses, but not both.
There may be other reasons I’m unaware of. Best place for an answer is the “Ask a Banker” forum on www.bankersonline.com.
When I asked my bank about this, they said it was perfectly fine to use a personal account for my business. It might make a difference that I am not depositing things daily, nor do I have many withdrawals (I am a psychologist).
I walked into Chase a few minutes ago and asked them. They said there’s nothing wrong with using my personal account for business. However, using a business account will get me some perks and extra personal support that the personal account doesn’t offer.
I’ll concede thats some people may have been told by some low level bank employees that “it’s okay to use a personal account for business prurposes”. I’ll also concede that this is a fairly common practice. Finally, I’ll concede that some of the reasons why it’s a bad idea to use a personal account for a business don’t apply if the business is a sole proprietorship and not an LLC, corporation, partnership or other form of entity. (With a sole proprietorship, there’s no concern that co-mingling of funds will cause you lose your personal protection against business debts, as there’s no protection to lose - you’re on the hook in all cases.)
But even if the so-called “personal” account is kept strictly separate from the second (real) personal account used by the sole proprietor (thereby avoiding some of the bookkeeping issues), and even if all the business checks are made payable to you personally (or in a properly registered assumed name), there are still a few banking law distinctions.
An example? Federal Expedited Funds Availability requirements are different if the account is beiing used for consumer/personal purposes (rather than business purposes). A bank is entitled to (and really must, in my opinion) classify the two types of account differently for this reason.
Eevn without this, a bank may legitimately decide that business accounts involve more transactions or more risk, and charge more accordingly.
Disclaimer: Yeah, IAAL, and I do sometimes do banking work. But I’m not your lawyer, and you’re not my client. I’m probably not even licensed in your state. This is meant to be general information and not reliable legal advice. See a lawyer licensed in your state (who can ask questions tailored to your situation) for that.
Well, the guy I talked to was the assistant vice president of small business relationships, so I don’t think he qualifies as a “low level bank employee.”
I do, however, think that he was talking to me from the perspective of a sole proprietorship. I am not a limited liability company, and I do not do business under a fictitious name. This may chage, of course, but for the time being, there doesn’t seem to be any tangible distinction for me between the two types of accounts.
Assistant VP of small business relationships sounds like small potato “sales guy” to me. The only people in banks who usually understand banking law and regs are lawyers and compliance officers.
I’ve gotten ulcers trying to get simple points of law across with bankers in the past.
Remember that directors, VPs and officers are a dime a dozen in most banks due to the way the regs work… you have to have a certain title to approve a certain size of transaction.
I have two cheque accounts, one personal, one business.
My bank offers no-fee chequing for both business and personal, so both accounts are essentially the same. The only fee I’ve encountered is to use a diff bank’s ATM; I have no minimum deposits, no direct deposit requirement, no limits on number of cheques or teller use, it’s all free. Business and personal.
My business account returns the paper cheques I have written to me, the personal account does not (though I’m sure that’s just a thing peculiar to my bank), and the statement is also a bit different. I could be mistaken but they may send me some kind of summary report at the end of the year as well – I know my business credit card sends me quarterly reports and an annual report.
I would shop around. Bank business is very competitive where I live and many of the banks offer very good deals to get you to sign up/use them. If you look into information about self-employment, most recommends using two separate accounts, if not just for ease of bookkeeping on your own end – it makes things less of a nightmare if you get audited and also gives you a more accurate way to keep up with the amount you spend on your business vs. your personal expenses.
