Do you need a professional bank account if you are self-employed?

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If you are self-employed, whether as an independent contractor, freelance writer, consultant, or other type of small business owner, chances are you have a lot of questions about how best to manage your finances. Among them: “Do I need a professional bank account if I am self-employed?

In many cases the answer is ‘yes’ and we’ll explain why here, along with tips for choosing the best business bank account if you’re self-employed.

Do you need a professional account if you are self-employed?

While you technically don’t need a business bank account if you’re self-employed and working as a sole proprietor, you might find yourself regretting your decision not to get one later on. A separate business bank account can be useful in a number of ways. It allows you to:

  1. Monitor income from work as a consultant or independent or independent contractor,
  2. Detail the expenses that you can deduct,
  3. Make accounting and tax time less stressful,
  4. Budget for taxes and recurring expenses, and
  5. Get funding in the future.

If you want to be successful as a self-employed person, setting up a business bank account is a step in building a financially healthy independent business.

Pro Tip: If you’ve formed an LLC, S Corp, or other legal business entity, you should definitely get and use a business bank account. Not using it can put your personal property at risk.

If you are an independent contractor, do you need a business bank account? Again, the answer is “probably yes”. As an independent contractor, you will likely report your income and expenses to the IRS on a Schedule C form. (This can vary, however, depending on the type of business structure you choose.) having a separate corporate bank account makes it easier to keep track of this information.

The best business bank accounts for the self-employed

If you are self-employed, including as an independent contractor, find the best business current account will be different than it will be for a larger small business with employees. Here are some options to consider.

Axos

Small Business Verification by Axos Bank

Axos Bank has designed its basic business chequing account with small business owners in mind and as a result it is often on the lists of the best business chequing accounts. You can open your account 100% online and enjoy unlimited national ATM fee refunds, no monthly maintenance fees, and no minimum balance requirement. Earn a $ 100 bonus when you open a Basic Business Chequing account — just maintain an average minimum balance of $ 5,000 for at least 90 days after opening the account.

Bank of America

Small Business Audit by Bank of America

Bank America offers banking solutions to help you grow your small business. Take advantage of accounts designed to meet a variety of needs.

You can even earn up to $ 500 in bonuses from Bank of America:

  • Earn up to $ 200 when you open a new Bank of America business checking account over the phone and meet eligibility criteria
  • Earn $ 300 Credit: When you are approved and open a qualifying Bank of America small business credit card and make at least $ 3,000 in net new purchases with the card within the first 90 days of account opening Map.

chase away

Chase Business Full Banking ServicesSM

There are various reasons to consider Chase for your small business banking needs:

  • Win $ 300 when you open a new Chase Business Complete Checking account. For new Chase businesses verifying customers with qualifying businesses.
  • Several ways to waive fees. Plus, you’ll find several options for waiving monthly service charges, including maintaining a minimum daily balance or making purchases on your Chase Ink® Business credit card.
  • Integrated card acceptance.You can also accept card payments anytime, anywhere in the US, and get transparent pricing with Chase QuickAcceptSM.
  • Same day deposits with QuickAcceptSM. Free up the cash you need to move your business forward with same-day deposits at no additional cost.
  • Alerts to help you stay on top of your account activity. Easy account management via Chase Business online and the Chase Mobile® app. Unlimited electronic deposits, ACH and Chase Quick DepositSM. Convenient access to 16,000 ATMs and over 4,700 branches.

Novo

Small Business Online and Mobile Verification by Bank Novo

Novo offers extremely simple business banking services through its free checking account with debit card access, no hidden fees and no minimum balance required. Novo lets you integrate with the business tools you already use, such as Xero and TransferWise, and gives you a dashboard to see your company’s financial health at a glance. You can apply for an account in under 10 minutes on any device so you can start managing your business finances in one place and on the go.

What type of bank account do I need for a self-employed person?

Yes, you can get a professional bank account if you are self-employed. Before you open a professional bank accountIt is a good idea to obtain a Tax Identification Number (TIN) or Employer Identification Number (EIN) first, as some financial institutions will require it. (Note that the financial institution will also ask for your social security number because banking regulations require them to verify your identity.) However, you don’t need to have a corporation or LLC to get a business bank account. like many financial institutions; operating as a sole proprietorship can be great.

Most business owners will start with a business current account. It will also give you access to a business debit card that you may need to withdraw money or make cash deposits at an ATM.

As your income grows, you may also want to get a business savings account.

Another option is an account that allows for sub-accounts, so you can put some of your money aside for taxes or recurring expenses. These work similarly to the envelope budgeting system, allowing you to save money for specific expenses.

Make sure you understand the cost of the account. Same free business current accounts are going to have fees associated with them.

  • Will there be monthly fees and if so how can you avoid them?
  • What other fees does the account charge?

Review the features that are important to you, such as:

  • How robust is mobile banking and online banking characteristics?
  • Can I deposit checks on the mobile app?
  • Does it integrate with my accounting software?

Can I use my personal bank account for business purposes?

Yes, you can use your personal checking account for your business if your business is not incorporated. (If you’ve created a separate legal entity for your business, such as an LLC, S Corp, or C Corp, you should definitely use a business bank account to protect the integrity of your business structure.)

If you’re a start-up or have a side business, you’ll probably be tempted to stick with your personal bank account just because it’s easier than opening a new bank account.

But if you mix business and personal transactions together, all kinds of problems can arise. You could lose track of business expenses that might have been tax deductible, or you could accidentally claim personal expenses that should not have been deducted. (The IRS requires you to clearly document the income and expenses of the business.)

You may find it difficult to budget for recurring expenses in your business.

And more importantly, you may lose sight of how much you actually earn as a freelance entrepreneur, freelance writer, consultant, or small business owner.

In short, if your goal is to remain self-employed, you need to separate your business and personal expenses, which means getting a separate bank account for your self-employment income and expenses.

Advice on managing finances as a self-employed person

The most important thing an independent business owner can do to better manage their finances is to separate their personal and professional finances. This step alone will give you valuable information about the actual income of your business. This is because you will be able to see business income and most or all of your business transactions in one place, rather than guessing.

When you have your own business, another crucial step is to have a proper accounting system in place from the start, even if you are working as a freelance or freelance entrepreneur. Invest in accounting software and take a course or hire someone to set it up correctly for you. You can always hire an accountant to help you out as your income grows, but having one in place early on will save you a lot of headaches.

Obtain a business credit card for your professional purchases. A credit card can help you manage your cash flow by giving you more time to pay for your business purchases and you may be able to earn some lucrative rewards with a rewards card. The good news is that even new business owners can qualify based on their personal income and personal credit.

Make sure to use your business bank account to document business income. If you are getting income from multiple sources (billing, Paypal, Amazon, etc.), try depositing everything into your bank account. That way if you are trying to get a small business loan in the future, you will be able to show the lender how much money your business is making. This can be crucial in order to qualify for many types of small business financing.

This article was originally written on October 21, 2021.

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