One of the basics of running a small business is setting up a business bank account. This fundamental business function is often overlooked by new and part-time business professionals who mix personal and business funds. Most notably, co-financing is common in multi-level marketers and part-time businesses like self-employed companies such as freelancers, real estate agents and consultants.
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Even business owners with small staff often try to process business transactions through personal bank accounts to reduce costs and bank fees. Being in one of these categories can lead to potential problems for your business in the future.
Here are 5 reasons why you should separate your business bank account from your personal bank account, even if you are an exclusive owner working part-time.
According to the Internal Revenue Service, only businesses can deduct business expenses. In addition, there are specific guidelines for determining whether a business is a business change hobby. If the cost of running a business goes through a personal bank account, it can impress the IRS that the business is actually a hobby. Being audited will have a hard time convincing the government to actually run the business.
If you need to declare income and expenses related to your business over time, all personal transactions must be separated from your business transactions. It would be a time consuming nightmare if you had to go through all the transactions and receipts (up to a $10 taxi ride) to separate your business from the individual.
The U.S. government does not require a specific record keeping method or bank account. However, whatever method you use, all records must be accurate, complete, permanent and show clear records of income and deductions. Providing separate business statements and records provides a clear audit trail.
Small business banking and personal banking together create confusing transactions in your account statement. The worst part is that it is easy to overlook the deductions you can get. Whether you are preparing a tax return or using an accountant, messy record keeping can result in missing time, money, and deductions.
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If you have a customer who writes a check, it will signal that it is not a serious business if you write a check using your name in contrast to your business. Even if your business is part-time and you work from home, you will take your work seriously and your customers will.
Simplify recordkeeping and living by opening a small business banking account. Small business bank fees and features vary by a financial institution, so do your best to shop. Regardless of the cost, the benefit to the business is much greater than the cost of not opening a business account. In addition, business bank account fees may be partially deducted as an expense. You may also think that your business will grow in the future, and you can prepare in this way.