In practice, yes. IRS Publication 583 (12/2024) says one of the first things to do when you start a business is open a business checking account and keep it separate from your personal account. The SBA adds that a business account keeps business funds separate from personal funds and offers limited personal liability protection. ProfitDrawer's expense tracking guide calls a separate account the single biggest time saver in bookkeeping.
Why it helps:
- Your bank statement becomes a first draft of your income and expense records.
- You never have to sort a personal purchase from a business one at tax time.
- Business spending and income are easy to show if the IRS asks.
- Customers can pay your business by card or check.
What banks usually ask for, according to the SBA: an Employer Identification Number (or your Social Security number if you are a sole proprietor), your formation documents, ownership agreements and your business license. Some banks ask for more. An EIN is free from the IRS.
If you use one card for both today, pick a start date, such as the first of next month, and move all business spending to the new account from then on. Pay yourself by transferring money from the business account to your personal one, and record it as an owner draw, not an expense.
Source: IRS Publication 583, Starting a Business and Keeping Records · Updated
Tools and spreadsheets for this
Related questions
- How do I keep track of business expenses as a small business owner?
- How do I do bookkeeping for a small business myself?
- How do I get an EIN for my business and does it cost anything?
- What is the difference between a sole proprietorship and an LLC?
- How do I pay myself from my small business?
- How do I keep track of business expenses in a spreadsheet?
All questions on ProfitDrawer Answers →
General information, not tax, legal or financial advice. Check the rules for your state and your situation.