Can I Use My Personal Checking Account for My Business?

August 25, 2023   |   Written By Lexicon Bank
Can I Use My Personal Checking Account for My Business?

When you start a business, you have to make a lot of decisions, both small and big. One of the major decisions you have to make is deciding what kind of bank account you should use for your business. Should you open a separate bank account for your business transactions or should you use your personal checking account? Using your personal checking account for business purposes might seem simpler, but it could lead to problems in the long run. In this blog post, we will explore whether or not you should use your personal checking account for your business.

IRS Business Requirement

Firstly, the Internal Revenue Service (IRS) requires all businesses to maintain separate accounting records for business and personal transactions. This means that your business’s financial records should not be commingled with your personal finances. If you use your personal checking account for business transactions, you will have trouble separating your personal expenses from your business expenses. This could make it difficult to track all your business expenses and report them accurately to the IRS.

Building Your Business’ Credit Score

Secondly, using a personal checking account for your business would not help you build your business’s credit score. Your business’s credit score indicates its reliability and creditworthiness. By using a separate bank account for your business transactions, you can establish a credit history for your business. This will help you secure loans and lines of credit in the future. Additionally, it can help improve your business’s credit score and make you eligible for better financing options in the future.

Keeping Track of Finances is Easier

Thirdly, if you use your personal checking account for business transactions, it becomes harder to manage and keep track of your finances. Running a business requires you to keep track of all your transactions. Using a separate bank account helps you easily monitor incoming and outgoing payments. When you have all your business’s transactions in one place, you have a clear view of your business’s expenses. This would also make it easier to reconcile your bank account and prepare your financial statements.

Legal Issues

Fourthly, using your personal checking account for business purposes could put your assets at risk. If your business or the services it provides cause legal issues, your personal assets could be seized as a result of using a personal checking account. This would include all your personal funds in your checking account and any other assets that you may have. Having a separate bank account would protect your personal assets from any potential legal issues your business may encounter.

In conclusion, using your personal checking account for your business is not the best choice. Using a separate bank account for your business transactions will benefit you in the long run. It will help you keep accurate records and easily monitor your business expenses. Additionally, a separate bank account can help you establish and improve your business’s credit score, keeping your personal assets safe if your business is faced with legal issues, separate accounting is also a requirement by the IRS so that separating business and personal finances is vital if you want to be in good standing with the government. Therefore, it is advisable to open a separate bank account, even if it seems slightly inconvenient at the beginning.

 
 

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