Are you still using your personal bank account for your business?

It may seem like an unnecessary step, but separating your bank accounts can protect you in more ways than one.

by Stephanie Morrow
updated May 11, 2023 ·  8min read

Whether you work from home or own a multimillion dollar company, there are numerous reasons to separate personal and business finances. Yet, business owners still make the mistake of using a personal bank account for their business.

A woman examines documents at her desk while considering whether to separate her business and personal bank accounts.

Although having two bank accounts appears inconvenient, you shouldn't use a personal account for your business finances primarily because it can affect your legal liability.

In fact, one of the first steps to owning a business should be opening a business bank account, in addition to a personal bank account. Most banks now offer free business checking accounts so cost shouldn't be an issue.

Legal protection

When you set up an LLC or a corporation, one of the primary advantages of doing so is the legal liability protection it affords you.

The bottom line: the courts consider the corporation a separate entity from the individuals who own it. When you do business as a corporation, if the corporation gets sued, your personal assets should be protected from liability, but there are some exceptions.

But, if you mingle your finances, a court can potentially go after the individual running the company because it looks less like you're running a separate entity and more like you and the corporation are one and the same.

Tax advantages

It doesn't matter if your business is run out of a home office, strictly Web-based, or is a "brick and mortar" location, a separate business account has its advantages. Regardless of whether you set up an LLC, Corporation or Partnership, maintaining a business bank account will help you avoid unnecessary hassles.

For example, using a separate business account makes it much easier come tax time, as you will need to file your business income and expenses separately from your personal transactions. Differentiating personal expenses from business expenses when they are in the same account can be time consuming and cumbersome.

Bryan Greenwood from Washington Mutual Small Business Banking notes, "Keeping separate accounts (business and personal) is always the smart thing to do. Many business owners are so busy starting, running and growing their businesses, it is always better to develop good business habits early, especially when it comes to finances and record keeping."

In addition, the IRS has stringent rules for those who work from home about what can be deducted as "business expenses." If you use your personal account, the IRS may frown upon those deductions, even if they are legitimate business expenses.

Consider your credibility

Do you use the same checking account for both work and personal expenses? Do you use the same email address? What about your mailing address? Do you divulge your home address to all your customers and colleagues? Separating your information helps establish your own business identity. 

Besides IRS auditing issues, using a business account also adds a note of professionalism to your company. If a client receives a personal check for services rendered, they may not take you as seriously as you would like. However, a professional check from a business account will convey professionalism and, more importantly, confidence.

Establish a professional image

You want to set your best foot forward as you present yourself to your customers. Creating a professional image across all media platforms—social, digital, and websites—will look better than having your own personal name out there. Your business represents the service or product it gives to the public. Making sure that you exemplify that is very important.

Make sure to create your business social media pages and not use your personal profiles. With a business profile on Facebook, Instagram, LinkedIn, and Twitter, you can create engaging content for your customers and market to them. Business profiles also provide analytics, so you can track how customers interact with your content.

Creating a Google presence will allow your business to be found via maps (location) and lead customers to your website. You can also use these digital and social media channels to place paid ads and generate leads.

Get a business mailing address

Whether you're running a successful company, a side business, or you're a solopreneur, it will be much easier to have a separate address for your business. This keeps your home address private. If you ever move, it prevents you from having to change all your business information.

Good news: You don't actually need a physical address to have a separate mailing address. Leasing space in an office building or coworking space can become costly (and unnecessary in today's remote work climate if you're a home-based business). Instead of relying on a PO Box and having to run to the post office, you can instead use online mailbox services. A great option to help keep your private address separate from your business is a virtual address. A virtual business address provides:

  • A real street address
  • Security
  • Professional edge to your business
  • Opportunity to expand your business into new geographic areas

You can have all your mail forwarded to your virtual mailbox, making it accessible to you from any device, anywhere. At Earth Class Mail, a LegalZoom company, we have a network of addresses to select from. Use the address as your own and receive your mail digitally.

Added convenience: the business credit card

One of the best ways to make sure you distinguish between personal and business expenses is by using a separate business credit card. Expense reporting can be a daunting, yet crucial task for small businesses, and credit card statements can be a valuable asset when monitoring business spending.

In addition to the obvious reason of deducting business expenses with ease, using a business credit card gives businesses an additional line of credit that may not be an option from a traditional bank. Not only can businesses extend their cash flow to pay for business supplies, vendor services, and other ongoing payments; business credit cards can be used so that monies do not come out of the business's cash accounts. As soon as a customer pays his or her bill, the credit card bill can be paid.

Many business credit cards also come with business "perks," such as frequent travel discounts, higher credit limits, longer billing cycles, and lower interest rates. For example, the American Express Business Gold Rewards Card is very popular among entrepreneurs. You can earn up to 40,000 bonus membership rewards points during the first year, enough for one round-trip free domestic ticket.

In addition, some business cards give business rewards, such as cash-back options on the purchase of office supplies, while others offer flexibility to businesses that may not be offered with a standard, personal credit card. Finally, credit cards have zero liability for fraudulent charges, giving businesses added protection if their credit is used by an unauthorized party.

Processing credit cards

With the ability to shop online and run in and out of a store in the blink of a Visa swipe, business owners are realizing that customers hardly ever carry cash anymore. So what happens when a potential customer comes into your small business with only a MasterCard, but you only take cash? What if a customer searches for companies online with your specific product, but doesn't find you because you lack a Web site with online shopping? This is where a reputable Merchant Account Service is key.

A merchant account is a credit card business service set up by a financial institution, allowing businesses to accept credit cards as payment for goods or services. These companies process funds from respective credit card companies and then transfer the collected funds into the business's checking account.

There are two types of merchant accounts: traditional merchant accounts and online merchant accounts. Traditional merchant accounts authorize and transmit credit card payments using a credit card machine (swipe terminal), which is installed at the business. Online merchant accounts accept, authorize and process credit card transactions securely over the Internet.

Like any type of business partnership, merchant account providers should be researched thoroughly. The best way to find a suitable merchant account is to shop around and compare merchant accounting service companies, as many of them may try to take advantage of unknowing business owners with hidden fees, such as chargeback, pass-through, minimum or termination fees.

Be sure to read any contractual agreement extensively before signing on the dotted line, as some contracts may carry a non-cancellation clause. Be sure to read any contractual agreement extensively before signing on the dotted line, as some contracts may carry a non-cancellation clause.

Setting up accounting

Determining whether you will need a business bank account, credit card and merchant account service is imperative, but setting up the accounting for the business is also an important step. You have probably already determined what type of business you will be running, whether it is a corporation, sole proprietorship, or partnership. If not, this must be established, as your business structure will determine which type of accounting will be best suitable for your business' needs.

Once the business structure is established, the next step is to clarify the business' spending requirements. How many checks will you be depositing each week? How many checks are written? Does your company need the ability to deposit large amounts of cash? Is in-person banking a priority or will you be making deposits after hours via an automatic telling machine? These are just some of the questions that need to be answered in order to find out which type of bank accounting is right for you.

With each of the above, finding a reputable company is imperative, whether it is a bank, credit card company, or a merchant account. Select a company that is convenient to both your business and your lifestyle. In addition, be sure to choose the most appropriate type of account for your particular business.

Need help building your business? Check out these special offers on small business solutions from LegalZoom’s trusted partners. From bank accounts and point of sale systems to business insurance and licensing, LegalZoom’s partners can help you turn your big idea into big business.

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Stephanie Morrow

About the Author

Stephanie Morrow

Stephanie Morrow has been a contributor to LegalZoom since 2005 and has written about nearly all aspects of law, from ta… Read more

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of the author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.