I recently found differences of opinion from tax professionals in the blogosphere on this subject.
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."
So who is right?
Different Legal Structures
These experts are speaking from different points of view. June Walker is talking about independent professionals who are working as sole proprietors, while the other two are a CPA and attorney who are talking about limited liability companies and corporations.
A sole proprietorship is a business entity that is not separate from the owner. But that doesn't mean that the sole prop doesn't have to keep business and personal expenses separate. If a sole proprietorship chooses to keep business and personal records in one checking account, that is not a huge problem, as long as there is a record of all business expenses which are being claimed as tax deductions for the business, and as long as no personal expenses are mis-labeled as business expenses. A sole proprietor can keep just one checking account as long as he or she makes certain that business and personal expenses are correctly labeled.
For these business entities, particularly for corporations, there is the added concern about keeping company and personal business totally separate. As Tax Lawyer says, failure to separate business and personal can result in the owner being sued for liabilities of the business and for the owner being responsible for corporate liabilities.
About Hobby Businesses
In the case of a business which loses money in the start-up phase, and which could be considered a hobby (like a craft business or horse business), the separation of personal and business checking can help increase the credibility of this effort as a business, not just a hobby. Read this IRS Article "Business or Hobby?" for more information.
If your business is a sole proprietorship, you can probably continue to keep just one checking account if you wish, but just make sure that business and personal expenses and income are labeled and that no personal expenses are claimed as business expenses.
For all other types of business entities, get a separate business checking account.
Disclaimer: I am not a CPA, attorney, or enrolled tax preparer. My purpose is to provide you with general information and suggestions, but your situation may vary from the ones presented here. Before you make any tax or accounting decisions, talk with your CPA or tax preparer.