Can you use a personal checking account for your business?

Let’s say you’ve just started your business and things are moving fast. Between landing customers, managing orders, and managing finances, you might be wondering, “Do I really need a separate business bank account, or can I just use my personal one?” The idea of ​​keeping everything simple and in one place is tempting. But while you can use a personal checking account for business, it might not be the best move for you in the long run.

Let’s look at why you might want to reconsider having just one account and what the real differences are between personal and business checking accounts.

Personal checking accounts versus business checking accounts

So what’s the big difference between a personal and business checking account? At first glance, they both seem to do the same job: you can deposit money, make withdrawals, and pay bills. But when you really think about it, there are some key differences that can affect how you manage your business financially and fiscally.

Personal current accounts

A personal checking account is designed for your individual, everyday use. It’s perfect for managing day-to-day personal expenses, like paying rent, buying groceries, or splurging online. These accounts are usually free or have very low fees, and often have limited features because most people don’t need anything too fancy for their personal finances.

Business current accounts

On the other hand, a business checking account is made specifically for businesses, whether you are a sole proprietor, LLC, or corporation. These accounts typically include business-friendly features such as:

• The ability to have multiple signatories (think business partners or employees)
• Higher transaction limits
• Merchant Services (to accept payments from customers)
• Integrations with accounting software (like QuickBooks)

There is also a question of legitimacy. Having a business bank account shows your customers, vendors, and even the IRS that you’re running a serious operation. Mixing personal and business finances can cause confusion and potentially land you in hot water, especially when tax season rolls around.

Disadvantages of using a personal bank account for business

You might be thinking, “Well, using my personal checking account for business doesn’t sound so bad.” But let’s talk about why this might not be the best idea in the long run.

1. Confused finances

When you mix personal and business transactions in the same account, you create an accounting nightmare. Sorting out what is a business expense versus what is personal takes time and increases the risk of missing something important. If you’re being audited or need to provide financial information, you’ll want to have kept everything separate.

2. Legal Risks (Especially for LLCs and Corporations)

If your business is an LLC or a corporation, you likely set it up this way to limit personal liability. But mixing your personal and business finances could lead to something called “piercing the corporate veil.” This legal term means that a court may decide that you are not really treating your company as a separate entity and that you could be personally liable for your company’s debts and legal problems. Wow!

3. Complicated taxes

When tax season rolls around, having it all mixed up means extra work. You’ll need to manually review your personal account line by line to find out which transactions are deductible business expenses. This can lead to mistakes, missed deductions, and more stress than you need to.

4. Lack of professionalism

Imagine writing a check to a vendor or receiving a payment from a customer, and it all comes from or goes to your personal account. It can give off the vibe that your business is more of a side hobby, which may not instill confidence in customers or partners.

Who needs a business bank account?

Honestly, everyone running a business should have a separate bank account, regardless of the size of their operation. But here are some cases where it’s especially important:

• LLC or Corporations: As mentioned above, these types of businesses need separate accounts to maintain their limited liability protection.
• Freelancers and freelancers: Even if you’re not legally required to separate your accounts, it’s still smart. Having a business account simplifies taxes and makes you look more professional.
• Non-profit organizations: Donations, grants, and other forms of income need to be managed efficiently, and having a business account available can help a nonprofit manage its resources effectively.
• Companies with employees: If you have employees, you probably need to write checks or set up direct deposits. A business current account makes payroll management much easier.

Advantages of a business bank account

So why go through the hassle of setting up a business bank account? Here are the main advantages:

Easier record keeping

When all your business transactions flow through a separate account, accounting becomes much easier. You can track income, expenses and profits without reviewing personal purchases.

Better tax preparation

Having a dedicated account for your business means all your income and expenses are in one place, making tax preparation a breeze. Plus, you’re more likely to capture all of your deductions and avoid costly mistakes.

More professional image

Customers, vendors, and partners will take you more seriously if you pay them from a business account instead of your personal one. Show that you are serious about your business.

Increased access to business tools

Many business bank accounts offer additional tools and features such as accounting software integration, higher transaction limits and merchant services, which can save you time and help you grow your business.

Building business credit

A business checking account is often the first step to building business credit. This can come in handy if you ever need a loan or line of credit to expand your operations.

Considerations when choosing a business bank account

Now that you’re on the fence about getting a business bank account, how do you choose the right one? Here are some things I suggest you think about:

1. Rates

Business accounts often come with fees, such as monthly maintenance fees or transaction fees. Look for an account that offers fee waivers, such as maintaining a minimum balance.

2. Transaction Limits

If you process a lot of payments or make frequent deposits, look for a bank that offers higher transaction limits.

3. Location and accessibility

Do you need a local branch for deposits or are you comfortable doing everything online? Some banks specialize in small businesses and have excellent mobile banking features.

4. Characteristics

Consider all the potential benefits, such as the ability to accept credit card payments, allow multiple signers on the account, or even seamless integration with accounting software. For example, if QuickBooks integration is key to your business, consider reading our list of the best banks for QuickBooks integration.

While it may seem easier to stick with your personal checking account, the benefits of opening a business bank account far outweigh the convenience of not doing so. It will save you time, stress and potential legal problems in the long run.

Want to make sure you have all the information you need to get started? Check out our easy-to-follow guide on the steps to take to open your business bank account.

Frequently asked questions

Can you use a personal checking account for business?

Yes, you can technically use a personal checking account for business, but it’s not recommended. It can lead to confusing finances, complicated taxes, and legal risks if you operate as an LLC or corporation.

What happens when you use a personal account for business?

Using a personal account for business can create accounting headaches and tax complications. It also exposes you to legal risks, especially if your business is structured as an LLC or corporation, as you may lose personal liability protection.

Can you use a personal account as a business account?

Although you can use a personal account, it is not a good idea. Business accounts offer additional features designed for businesses, such as higher transaction limits and accounting tools, and help keep your finances clean.

Can you put a business name on a personal checking account?

No, most banks will not allow you to put a business name on a personal checking account. If you want your account in your company’s name, you’ll need to open a checking account for the company.

This article was reviewed by our banking expert Tricia Jones.