Separate Business Bank Accounts: Keep the Plumber in the Right Room

Why should you keep your business and personal finances separate?

A separate business bank account is one of the simplest ways to protect your business, improve your bookkeeping, simplify tax preparation, and reduce headaches if you're ever audited. Mixing personal and business transactions makes it harder to understand how your business is really performing and often creates extra work—and extra cost—at tax time. Keeping each account focused on one purpose helps you make better business decisions and keeps everyone, including your CPA, on the same page.

Think of it this way, say you have a plumbing issue with your kitchen sink.  You call a plumber. When they arrive, you say:  "Well...the leak is in the kitchen.  But you might need to check the laundry room.  Maybe the bathroom.  Oh, and while you're here, could you look through the garage?"

Sounds ridiculous, right?

If the problem is under the kitchen sink, the plumber doesn't need to wander through your entire house.  Not only do you have no idea if your plumbing is working properly (clean financials), you don’t know how much water you're using (true business expenses).

An IRS audit works much the same way.

When business and personal transactions are mixed together, you've invited the auditor into rooms they never needed to enter.  Why yes, I’ll take a gander at your entire Amazon purchase history, thanks!

That's why one of the first things we recommend to every business owner is...

Open a separate business bank account.  And use it ONLY for business purposes.

Same goes for any credit cards. 

Keep it separate.

Keep it simple- only true business expenses.

Should I keep my business activities in a separate business account?

Many questions we receive can be answered with one response:  It Depends.  But when it comes to keeping your business in its own lane, we say YAAAS.  And to take it one step further- we want ONLY business transactions in this account.  No quick trip through a drive-through, the car wash, your Hulu subscription. The things that if you didn’t have your business you wouldn’t be incurring, like business registration fees, company insurance, etc.

✔ Common Questions

Accidentally use the wrong card? 

We get it, it happens.  We recommend using a permanent marker to label “BUSINESS USE”, or splurge for a logo debit card if you’re feeling fancy. 

What about the stuff I own personally used in my business? 

If you have “mixed-use” expenses, such as a home office, using a personal cell phone for business, vehicle mileage, those are all handled differently/separately.  Don’t include them here.  Just because you used your phone 1 time a month for a business call doesn’t mean write off a $1200 iPhone and $400 family plan.

Good bookkeeping starts with good boundaries.

How do I know if I’m keeping good records?

If your CPA has to play detective every March, something went wrong the other eleven months of the year.  Clean books = less effort on the small stuff and savings on your preparation fees.  While we love a good puzzle, we’d rather paint a tax savings picture than ask what each Venmo transaction was for.

✔ Bottom Line

Keep business money in business accounts.

Keep personal money in personal accounts.

This article is provided for general educational purposes only and is not intended as tax, accounting, legal, or financial advice. Laws and individual circumstances vary, so please consult a qualified professional regarding your specific situation.