You have probably heard before (at least you heard it from me) that you must have a separate checking account for your business and personal banking. Some tax professionals agree with me; some don't.
June Walker (June Walker Online) says you don't need a separate business checking account. In fact, she says it's easier without it.
The Wandering Tax Pro Robert Flach says you DO need a business checking account
And The Tax Lawyer's Blog says mixing up personal and business checking accounts is a really bad idea because it can bring you liability problems related to "piercing the corporate veil." (More about that in a minute).
Who is Right?
They all are. In this question, I think the varying points of view come from differences in perspective. Here is what I mean:
June Walker is talking about independent professionals who are set up as sole proprietors. At least, I think this is what she is discussing. In that case, I agree that it is difficult sometimes to separate business and personal funds, because you must make payments from your personal account to your business account and your purchases may be mixed up between personal and business purposes.
The two tax attorneys (Wandering Tax Pro and the Tax Lawyer) are talking more about corporations and limited liability companies. In both of these cases, you need a separate business checking account, for several reasons:
1. To let the IRS know you are a separate business entity, so they don't look on your business as a hobby. Depending on the type of business you are running, this may or may not be a big issue. But why take a chance? If you read my blog post from yesterday, you can see that the IRS wants you to show you are serious about making a profit.
2. To maintain the integrity and separateness of your business from your personal life. In the case of a corporation in particular, the Tax Lawyer is right; if the corporation is sued, and you cannot show that your corporate and personal business are separate, you can be sued along with the corporation. This is what he means by "piercing the corporate veil."
What Should You Do?
My suggestion (and remember I'm not a CPA or an attorney): If you are a sole proprietor, having only one checking account is not a problem as long as you can keep your business and personal records separate and be sure you are not recording personal expenses as business expenses. If you are any other kind of entity (LLC, partnership, or corporation), get a separate checking account.
Tomorrow, I will talk more about ways to keep your business and personal accounts separate, with one checking account or two.