One of the most basic requirements of operating a small business is establishing a bank account in the business name. For some new business owners, this may seem trivial and unnecessary, since their business is operated out of their home.
However, the consequences of mingling your personal and business funds, even if it is part-time, can be disastrous – especially if the IRS makes a call to see your small business financial records. Here are 5 good reasons you need a bank account in your business name.
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Business For Profit
The IRS acknowledges that some small businesses are actually a hobby run for fun by the owner. However, if you expect to earn a profit from your business operations, you can bet the IRS will want a piece of that action. A separate bank account will help give you the appearance that you operate a business, not a hobby.
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Look Professional For Customers and Clients
When a customer writes a check to you personally, it appears that you are not a “professional.” Having a separate bank account is just one of those factors that help make a business look legitimate and professional to your potential customers and clients.
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Tax Filing
You are required to file your business taxes, either by April 15 every year, or every quarter if you are a self-employed small business owner. Having that separate bank account will help you keep track of income and expenses for the periods you file. Without it, trying to separate your business checks and deposits from your personal transactions can be a nightmare.
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Easily Find Deductions
When preparing taxes, you want to deduct every expense possible that is allowed by the IRS. With your separate small business bank account, you can more easily sort through your canceled checks and bank statements to find the expenses that reduce your tax burden.
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Leaves The Audit Trail
No one wants it to happen, but if the IRS deems you worthy of an audit, you will need to show them a full, complete, and clear record of all your small business financial transactions. Your separate bank account will aid in the audit process.
A small business bank account may be an extra expense, but the small amount paid is worth the organization and separation you get for your business transactions.
