Owners of businesses have the option of using various banks for their personal and business accounts, or they can select a single bank that provides them with competitive accounts.
How can I open a bank account for my business and What do I need to create a bank account for my business?
You’ll need to give the bank (when you locate a bank that offers accounts with the rates and terms you want) a few documents, Such as –
• An employer identification number (EIN) or Social Security number (SSN) is needed to open a business bank account.
• Business creation documents, a business license, ownership documents, and formation documents are also required.
• You will need to deposit money into the new account.
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Mercury (link) is our official banking partner. You will receive $125 in cash if you establish an account utilizing https://mercury.com/partner/rocketwave and spend $3K with a debit or credit card within your first 90 days.
There are several reasons to have a separate business bank account rather than just one. If you operated an LLC, sole proprietorship with a DBA, C-Corporation, or S-Corporation, you were legally required to have a business bank account.
Some justifications for keeping business accounts and personal accounts separate:
1. Separate accounting records are required for separate entities
A business bank account makes it easier to maintain separate accounting and bookkeeping records if your company is a separate organization, like an LLC or corporation, as required by the IRS. Whether your company is a corporation, partnership, or incorporated sole proprietorship makes no difference.
2. Convey professionalism:
The company should always present itself in a professional manner to show an underlying commitment to professionalism and organization. That implies that checks written to suppliers should reflect that the company is doing business with them. If business and personal expenses are not kept separate, the individual could be held responsible for the company’s decisions.
3. Provides the IRS with a clear audit trail
Make sure to save all your invoices and expense receipts as a backup. An IRS audit could become a headache if you combine your personal and corporate finances in one bank account.
4. Evidence That Your Business Isn’t a Hobby
When it comes to demonstrating that your company is a true business and not just a hobby, the Internal Revenue Service (IRS) is exacting. Basically, three out of every five years, you must demonstrate a profit on Federal Tax Form Schedule C. The IRS may determine that you are running a “hobby business” if you have losses that you deduct from your income three years in a row. Even if you meet the “3 out of 5” requirement, an IRS audit is still possible. If you have a separate company bank account and an organized set of business books, you can further demonstrate that you are a business and not a hobby business.
5. Access to Business Loans
The financial institution will require that you have a business account in order to apply for a loan for your business.
6. Simplified bookkeeping for Tax season
A business bank account makes it straightforward to manage revenue and differentiate between business and personal expenses during tax season.
7. Establishing Bank Connections
If you have a solid working connection with your bank, your chances of obtaining a business loan or line of credit are higher. The first step in developing this connection is creating a business bank account.
8. Get better banking perks and services
Business credit cards and accounts often provide unique cash back benefits, additional “float” or grace periods, and other tools to help track spending. When just starting out, entrepreneurs usually have straightforward demands for company banking; they should create a business checking account first.
Major Consequences of not having a business account:
When you use your personal bank account for business activities, there is always the chance of experiencing some bad consequences which range from slightly unpleasant to financially devastating. Some major ones include:
1. Difficulty in Record-Keeping
It becomes difficult to keep track of spending for tax write-offs when personal and corporate expenses are combined into one account.
2. Higher Fraud Risk
More activity increases the chance of fraud (intentional or not). Moreover, by opening a business account with your Employer Identification Number (EIN) rather than your Social Security number, you may safeguard your personal information. The scammer won’t have complete access to your data if your business account is hacked.
3. Unable to obtain business loans
You must have a business bank account if you ever need a loan to finance business expansion, a sizable purchase, or debt repayment.
One Situation in Which a Separate Account May Not Be Necessary is in a Sole proprietorship business. Because it is not a separate legal entity. It refers to a person who owns the business and is personally responsible for its debts.
After reading this, you should understand why you need a business bank account. The most important takeaway from this discussion is that having two bank accounts makes it easy to keep your personal and business finances distinct and separate. You will also benefit from greater banking features and services for your business. Aside from traditional banking, there are advanced finance solutions such as Wise, Brex, and RelayFi that offer comprehensive money management capabilities for businesses.