Passing on bi-weekly paychecks for the independence of self-employment can come with both freedom and financial uncertainty. One way to relieve that uncertainty is to open and maintain bank accounts that let you effortlessly manage your money.
Read on to learn how to manage bank accounts when you're self-employed.
The answer depends on your business structure. In general, you need a separate business and personal bank account if your business is a separate legal entity (e.g., an LLC, partnership or corporation). From the law's point of view, the finances of the owner are expected to be separate from those of the business for these structures.
In the event of a claim made against the business, you could be on the hook legally and financially for the liabilities of the company without a dedicated bank account that proves you are managing your business affairs separately.
If your business structure is a sole proprietorship, you can technically get by with a single bank account because your business and personal finances are already intertwined from a legal perspective. However, even as a sole proprietor, it's prudent to maintain a separate business bank account to help differentiate between personal and business income and expenses. In fact, depending on the bank and the number of transactions you need to make each month, your bank may even require you to open a separate business bank account.
The separate account will also help you track your spending, easily budget, reduce tax filing hassles and support any business deductions or credits you claim should the IRS audit you. Given the many options available today for free or low-cost business bank accounts with minimal administration, there is little reason not to get a separate business bank account.
In addition to maintaining separate business and personal bank accounts, use these tips to stay on top of your business finances: