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If you started your business as a side-hustle from your main job or college degree, there’s a good chance you accepted payment for your first invoices into your personal bank account. It sure feels good getting that boost to your monthly bank balance, but in the long run, this approach is just not sustainable – especially as the business grows.

Let’s look at why you need to open at least two separate accounts in addition to your personal bank account: one for tax and one for income after tax.

We’ll also explore whether you need to open a dedicated business bank account, or if you can just keep on using a standard personal bank account.

Why you need to open at least two new accounts for your business

When starting your business, it’s highly recommended that you open two new bank accounts, besides your personal bank account and any savings you have. There are a few obvious reasons for doing this:

1. Keep your personal bank account for personal spending
Perhaps the most obvious reasons for separating your accounts is that you save the confusion of having your personal income mixed up with the business’s money. Once you have separate accounts, it will be much easier to track how much money the business is making, and cuts the chance of any confusion about which payments are personal, and which are professional.

2. Putting money aside for tax season
If you’ve never filed a tax return before, you should read up on the dates by which you need to file your taxes with the Internal Revenue Service (IRS), and find out about the forms you have to fill in.

In any case, you’re going to need to put aside a proportion of your income from your small business to eventually pay your taxes. How much you will need to pay depends on a number of things, including your income, expenses and the type of business you’ve set up. Here’s a decent guide from The Balance to working out what you will owe.

Say you estimate that about 20% of your income will go on taxes. Every time a client makes a payment and it lands in your business account, you should get into the habit of syphoning off 20% into your ‘tax’ account, so you’ll never come up short when you go to pay your tax bill.

3. Keep business bank account for business spending
This bank account will hold all your income after tax, and belongs to the business. Anything the business buys, or any payments you make to employees should come from this account. It’s also a good idea to ‘pay yourself’ from this account, sending a monthly salary to your personal bank account – it means you avoid ever over-spending.

Separate accounts back you up if you get audited

There are other reasons you should keep your money in separate accounts, besides tax and pay. Perhaps most importantly, if the IRS ever decides to audit your business, it will be much easier for you to hand over your statements if your personal and private banking are kept separate.

Why might the IRS investigate a small business like yours?
A common reason is that the IRS may suspect you are running a ‘hobby business’. A hobby business, such as occasionally running a stall at a flea market or doing a garage sale, is not counted as a ‘real business’. Nonetheless, some people try to claim expenses on any losses their hobby makes, which the IRS does not allow. If you seem to be running a hobby business, you therefore may be audited. However, if you have a separate bank account for your business, and can show that this is your principal source of income, you won’t have anything to worry about.

OK, so what kind of account do I need?

The answer is: it’s up to you. Many freelancers, solopreneurs and small business owners choose to use a regular free bank account for their business income. This is totally fine if you are registered as a sole-proprietor. However, if your business is registered as an LLC (Limited Liability Company) you have to open an official business bank account.

Business bank accounts usually come with some kind of monthly charge, which is one reason freelancers and those just starting out prefer to stick with a free personal bank account. That said, there are definite benefits to using a business bank account as a solopreneur.

    • Perks and credit

Most business bank accounts give you a lot more credit than regular accounts, as well as other perks and benefits. You may well also get access to free advice from an account manager and you boost your chances of getting a loan from the bank if you ever need one:

    • More professional

This is about perception as much as anything. If you need to write checks to your suppliers, it looks a lot more professional to have your company’s name and address printed on the check than your personal details. This also goes for the IRS, who will also see the business as a serious concern.

    • Connect to your accounting software

Many banks have set up agreements with accounting software companies that allow you to connect the two. This just makes for much easier accounting and bookkeeping as the business grows, and saves you a lot of hassle.

Once you’ve got the basics of bank accounts in place, your business will be much more sustainable, and your finances less confusing. Ultimately that means you will have much firmer foundations on which to grow long term.


Len Williams

Len Williams


172 B Upper Street
N1 1RG


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