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If you are starting your own business, the IRS recommends getting a separate checking account specifically for managing business finances. But do you need to open a professional checking account or can you open a secondary checking account instead?
We’ll walk you through the differences between business checking accounts and personal checking accounts so you can better understand your options and the next step to take in your business.
Professional Control vs. Personal Control: At a Glance
Business checking accounts and personal checking accounts have two major distinctions: these accounts have different characteristics and opening conditions.
- A business checking account is aimed specifically at business owners. As a result, it can provide a greater sense of protection and professionalism for people managing business expenses.
- A personal checking account is used for daily finances. While it may be easier to set up and open than a business checking account, you generally won’t have access to many business features.
What is a business current account?
Business checking accounts are designed for business owners and are available at physical and online financial institutions.
You will need business documents to open a business checking account online or at a branch. For example, if you have a partnership or corporation, you will need your Employer Identification Number (EIN), business license, and any important business documents that specify the partnership, business, and corporate agreements. exploitation. As with a personal checking account, you will need to bring two government-issued IDs and proof of address to verify your identity.
When you open a business current account, you will have access to additional business banking features at financial institutions. Many banks offer merchant services, which allow you to accept credit cards, debit cards, or mobile payments as payment methods. You’ll also be able to apply for a business line of credit, which might be worth exploring if you have an emergency and want to separate your personal finances from your business.
When would you open a business checking account?
A business checking account will be a better option if you plan to use other business banking services offered at financial institutions.
“Professional accounts offer benefits not available to regular checking accounts that might be tied to merchant services. There is also additional liability protection separating your funds,” says Marguerita Cheng, CFP® Professional, RCP and CEO of Blue Ocean. Global wealth.
For example, banks may offer merchant fraud protection tools for your business and customers when you have a business checking account.
Jeb Jarrell, CFP® professional and owner of Plentiful Wealth, LLC, also notes that a business checking account helps you look more professional when competing for a client or transaction; it shows other business owners that you are a legitimate business.
What is a Personal Current Account?
A personal checking account is a type of bank account that anyone can open to manage their expenses.
Personal checking accounts can be opened online or at a branch and don’t require as much documentation as business checking accounts. You will usually need US ID, Social Security number and business address. If you don’t have a Social Security number or US ID, some banks will allow you to use a foreign ID instead.
When would you open a personal checking account?
Cheng says if your business is a sole proprietorship, you can open a personal checking account instead of a business checking account as long as you keep your finances separate and distinct.
“If your business is growing, you can open a secondary checking account,” Cheng adds. “Then, as your business grows, you can upgrade and get additional client features. That way you’re not mixing your money, but you’re not setting all those bells and whistles.”
Remember that if your business is a separate entity, such as a corporation, you will need to open a business bank account to separate your personal assets.
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