If you have ever started your own business venture, you have probably asked yourself this question. Keeping your personal and business finances separate is a choice you can make while your company is still small. If it continues to grow, it is definitely recommended to get a business bank account. But take a second to stop and consider which is best for you. Is bank account a personal account? Or should you have your personal and business finances separated?
Ultimately, this answer will depend on where you are as a business. If you are just starting out and are registered under your own personal name, then a personal bank account will likely suffice. But if you are planning on making large transactions and anticipate your business growing, then it probably makes sense to get a business bank account.
The debate between using a personal and business bank account is more common than you might think. In this article, I’ll discuss the differences between the two and why you might consider using a business bank account over a personal one in 2023.
Is Bank Account a Personal Account?
There are numerous different types of bank accounts available to Americans. Two of the most common are your personal checking account and of course, a business account. This article will work under the assumption that you are starting or looking to start your own company. If you aren’t, then there really wouldn’t be any need to ask about starting a business bank account!
For most of us, our personal bank account is where our paychecks and other credits are deposited. It is also used to pay for personal goods and services like groceries or rent. Until you start a business, you don’t really think about a bank account as anything other than personal.
Can You Use a Personal Bank Account for a Business?
The short answer is yes, you can! Is it recommended? Not unless your business isn’t planning on seeing much growth over time. When would a person use a personal bank account for a business? This is a perfect situation for freelancers or those operating a small service under their own name.
For these people, it makes sense to use their personal account as their business account. Keep in mind that mixing the two into your personal account can make accounting difficult. If you need to keep track of earnings or sales for tax season, then you will want to make sure you are very organized in your personal bank account.
You should also be aware that certain types of companies will require you to open a business bank account. This mostly has to do with how you are registered as a company. If you are a sole proprietor you likely won’t need to urgently open a business bank account. But if you are incorporating your business, then you will need to keep your personal and business finances completely separate.
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Can I Take Money Out of My Business Account for Personal Use?
Yes! I find that many people struggle with this idea. How do you think you get paid as a business owner? The whole point of starting a business and earning income is to pay for your personal costs. Taking money out of your business account to use is not stealing from the company.
If you are a co-owner of the company then you might need to have the permission of the other owner. Make sure you are setting your business bank account up properly. This could mean that two or more signatures are needed to withdraw money from the account. It is always better to be safe rather than sorry when it comes to your business.
When you withdraw money from your business account it is called a distribution. Make sure to keep track of all the distributions that take place throughout the year. Why? Because this is an important distinction to make when it comes time to file your business income taxes. Do not feel bad about paying yourself from the business bank account though. As a business owner, it is the only way you can ever get paid!
What is Special About a Business Bank Account?
Aside from it being required for certain business structures, what is so special about a business account? There are several major differences between the two types of bank accounts. Business bank accounts can accept payments from methods such as credit cards. You cannot accept these types of payments with just a personal bank account.
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When it comes to tax preparation time, it is always easier to have two separate bank accounts. The Federal Government enforces a regulation that most business owners need to report tax quarterly instead of annually. This higher frequency makes it critical that your business finances are organized. If you have it all mixed into your personal finances and you get audited, the IRS could investigate your personal bank account as well.
Depending on the type of business you own, liability can be a major issue. If you separate your finances, your personal assets will be kept safe in case of a potential worst-case scenario. If you are ever hit with a lawsuit, the party could come after your personal finances. This is another reason to keep everything separate, especially if you operate in an industry with liability. Remember, the IRS and banks can always ask where you got your money, so having everything organized will help if this situation ever comes up.
The Bottom Line: Is Bank Account a Personal Account?
For a majority of Americans, a bank account is a personal account. For the brave few that own their own companies, opening a business bank account makes a lot of sense. Keep your business finances and your personal finances separate and everything will be easier to keep track of!
Thanks for coming by and reading this today!