As the world is shifting to a lot of freelance and gig work, there may be more business-related questions from the average everyday person. For example, suppose you’re just starting a business, or perhaps, you’re self-employed. In that case, you may wonder if you need a separate business banking account.
You might be tempted to think that it would be more efficient to have only one account if you don’t pay employees. That’s not quite the case, though.
Common mistakes, according to the IRS
According to the Internal Revenue Service (IRS), one of the most common mistakes made regarding taxes is mixing expenses. When you operate personal and business expenses out of the same account, things can get hard to define during reporting and audits.
Even if you’re not legally required to operate your business from a separate account, opening one may be a good idea. A business transaction may be hard to recognize in a personal statement when it’s related to:
- Payments received
- Equipment purchases
- Utility costs
- Client meals
- Office décor
Instead of identifying business purchases during reporting or auditing, having a separate account keeps all of those together.
When to get a business account
Even if your business is not legally required to have an account, it’s likely a good idea to get one before you make your first purchase or receive the first payment. You might want an account set up to streamline expenses and keep things clear.
If you operate a small business or are self-employed, you might run into other issues regarding tax reporting or audits. In that case, it would be a good idea to learn more about the laws regarding self-employment tax issues to help protect yourself and your business.