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Do we really need a business bank account?
Old 11-30-2013, 11:02 AM   #1
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Do we really need a business bank account?

DW is a sole proprietor in her small business/practice that is a part time affair. We have always kept a small business checking account at a local bank just to keep things straight. However, the local bank is in the stone ages (very basic web access, have to actually go to a branch to make a deposit, etc.), while we do most of our banking with the very hip, very easy to do business with Schwab (we deposit checks with a smartphone app that does not require leaving the house or a stamp). Is there a good reason why we should keep a separate small business account? Does this improve our stance with the tax authorities in some way?
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Old 11-30-2013, 11:12 AM   #2
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There are many good reasons to have a limited liability entity form of business ownership instead of sole proprietorship, which in turn would requre a separate business checking. The main reason is unlimited personal financial liability -

Sole proprietorship - Wikipedia, the free encyclopedia
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Old 11-30-2013, 11:22 AM   #3
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For liability and tax reasons I think it is important to keep things separate. However, your local bank obviously is not providing the service DW's business needs. I would suggest looking for a better local bank or setting up an account for the business at Schwab or another large institution that can provide appropriate services.
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Old 11-30-2013, 11:28 AM   #4
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There are many good reasons to have a limited liability entity form of business ownership instead of sole proprietorship, which in turn would requre a separate business checking. The main reason is unlimited personal financial liability -

Sole proprietorship - Wikipedia, the free encyclopedia
I did not ask about a sole proprietorship vs. a corporate organization for a good reason: its pointless. The nature of DW's work means that it would be trivially easy for a lawyer to pierce the corporate veil, so we deal with the low potential liability risk inherent in what she does via high limits of liability insurance.
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Old 11-30-2013, 11:31 AM   #5
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LLCs are usually pretty cheap and easy to set up. Your risk choice. It is a relatively cheap layer of asset protection considering your house and personal assets could be on the line.
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Old 11-30-2013, 11:38 AM   #6
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LLCs are usually pretty cheap and easy to set up. Your risk choice. It is a relatively cheap layer of asset protection considering your house and personal assets could be on the line.
Did you even read what I wrote?
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Old 11-30-2013, 11:43 AM   #7
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Did you even read what I wrote?
Yes. Sorry I did not give you the answer you wanted to hear.
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Old 11-30-2013, 11:46 AM   #8
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Yes. Sorry I did not give you the answer you wanted to hear.

Have a nice life.
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Old 11-30-2013, 11:53 AM   #9
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Have a nice life.
I really enjoy your posts Brewer. I have learned a lot from them and taken much of your financial advice.

I'm sorry I am unable to reciprocate. I have a couple of LLCs and have looked into asset planning, and I am surprised any one with assets to protect would not take this basic step. If it is not relevant to you perhaps others reading this thread may get some food for thought.
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Old 11-30-2013, 11:54 AM   #10
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I believe that sole proprietors aren't absolutely required to have a separate business checking account to comply with US federal tax law. But, your state or locality might have different requirements. You do have to keep good records for tax reasons, and having a separate checking account can go a long way towards making that easy.

(This is not legal advice.)
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Old 11-30-2013, 12:00 PM   #11
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In answer to your question , a business bank account is one of the many things that will make your wife's business more legitimate in the eyes of the IRS and state.

In case her business shows a loss on one or more years' tax returns, and in case you are audited, you may have to prove to the IRS and state that the business is legitimate. Otherwise it could be reclassified as a hobby, and the deduction for the loss denied.
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Old 11-30-2013, 12:07 PM   #12
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Why not simply set up another account with Schwab in the name of DW's sole proprietorship?

Since a sole proprietorship is not a separate entity from the person, I don't think that technically one is required to have separate accounts, but you are required to maintain separate accounting (sole proprietorship income and expenses vs personal income and expenses) and separate accounts simplify the task and are best practice. If she has few transactions or you use Quicken then you could have a combined account but separate accounting.

I guess it is possible that if you were audited by the IRS and they asked for bank records for the Schedule C that by having to given them both you business and personal bank records it might give them access to information that they don't need but that might cause other questions. Probably a low risk though.
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Old 11-30-2013, 12:27 PM   #13
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DW's business has never shown a loss in the decade plus she has had it, and probably never will. That said, the ability to turn over records in a coherent manner makes a lot of sense, so I guess we will maintain a business account. Will have to decide whether to keep the current provider. They do not charge us anything and we have some small personal accounts at this bank, its just a nuisance to have to physically have to show up to make deposits. And to the kids this is the "donut bank" because they put out donuts on Saturday mornings.
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Old 11-30-2013, 12:36 PM   #14
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They do not charge us anything and we have some small personal accounts at this bank, its just a nuisance to have to physically have to show up to make deposits. And to the kids this is the "donut bank" because they put out donuts on Saturday mornings.
Have you checked out any on-line banks that offer savings accounts/checking accounts? Given how technology has advanced, you're bound to find at least one that has no-fees, and allows you to do everything from the comfort of your lazy boy recliner - while also allowing you to separate the business from your investment account, and also allow electronic fund transfers.
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Old 11-30-2013, 12:54 PM   #15
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DW's business has never shown a loss in the decade plus she has had it, and probably never will. That said, the ability to turn over records in a coherent manner makes a lot of sense, so I guess we will maintain a business account. Will have to decide whether to keep the current provider. They do not charge us anything and we have some small personal accounts at this bank, its just a nuisance to have to physically have to show up to make deposits. And to the kids this is the "donut bank" because they put out donuts on Saturday mornings.
You get what you pay for. Does DW's business need banking integrity or donuts?
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Old 11-30-2013, 12:59 PM   #16
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Yes, perhaps I will get off my duff and see if we can substitute an account at Schwab Bank or Navy Federal for this account.
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Old 11-30-2013, 01:58 PM   #17
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FWIW, I have never had a separate business checking account ever since reporting Schedule C income almost every single year since about 1980. My business income is pretty simple: writing bespoke software, lecturing, teaching, and consulting. It amounts to less than $5,000 a year in income, but is pretty steady. I only get a 2 or 3 checks a year and clients provide me with 1099s, too, so tax reporting is trivial.

So my answer would be: No, you do not really need a business bank account.
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Old 11-30-2013, 02:09 PM   #18
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I have an llc for a little consulting I do on occasion. I do not have a business bank account and have never felt the need for one. I note on all of my invoices to make the check out directly to me. I have had a few clients who have made them out to the company and Schwab still takes the checks through on line deposit and when I have taken them to the branch. Don't waste the money on a business account.
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Old 11-30-2013, 02:24 PM   #19
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I have a small business, never had a separate bank account and never needed it. I think two factors would make me change my mind:
1) If I thought I'd be showing a loss and inviting IRS scrutiny.
2) If I thought I'd want to sell the business someday (would be important to have everything segregated and "neat" to show a prospective buyer).

Neither apply to me, so I'd stick with the donut bank and my individual account.

I did, however, get a separate AMEX card for my business. It's not strictly a business card in their parlance, but just a card issued under a different variant of my name (first and middle initials). My personal card, DWs card, and this "business" card all show up on the same statement and get paid with one EFT, but it's a handy way to keep the business travel expenses on one list.
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Old 11-30-2013, 02:35 PM   #20
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FWIW, I have never had a separate business checking account ever since reporting Schedule C income almost every single year since about 1980. My business income is pretty simple: writing bespoke software, lecturing, teaching, and consulting. It amounts to less than $5,000 a year in income, but is pretty steady. I only get a 2 or 3 checks a year and clients provide me with 1099s, too, so tax reporting is trivial.

So my answer would be: No, you do not really need a business bank account.

DW was in a similar situation for a few years. Writing software, consulting and travel to local businesses to install software and conduct training. We never bothered with a separate bank account, just kept good records, all receipts etc.

I think it's easy to find an internet bank with no fees, and these days it is easy to deposit checks via scanning or mobile devices. If you like to keep her business banking segregated then this what I would do.
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