Q&A - Separate bank accounts for business and personal

Question


I do not have a separate bank account for my business. Is this necessary and does the IRS require it?

Linda, Denver, Colorado

Answer


It is not necessary to have a separate bank account (and no, the IRS does not formally require it) but it is STRONGLY RECOMMENDED that you separate your personal and business financial lives.

First, having a separate bank account is one factor in your favor should the IRS ever audit your business and try to disallow any losses you may have claimed (as not being business related). The most important factor is the manner (how) in which you operate your business. If you do not have a separate bank account, how serious do you think the IRS will be in concluding that you had an intent to make a profit at your business?

By keeping accurate records, maintaining a separate bank account and telephone number for your business, getting a tax ID number for the business, and always trying to make a profit, you will satisfy the IRS’ rules and regulations concerning your profit motive and will be able to claim any results on your tax return.

In addition, having a separate bank account is a very good idea from an asset protection perspective and keeping your business separate and distinct from your personal assets.: