Do freelancers need a separate business bank account?

Plenty of freelancers run their first year out of a personal checking account, and nothing illegal happens. The trouble shows up later: in April, when you scroll through 1,200 transactions to find the business ones, or when a 1099-K and your bank statements disagree. This post, part of our taxes and expenses hub, covers when a separate account is worth it and how to set one up.

What the rules say

If you work under your own name as a sole proprietor, you and the business are the same taxpayer. Nothing in federal tax law requires a separate account; you report business income and expenses on Schedule C whatever account they pass through. IRS Publication 583 still advises opening a business checking account so your business transactions are kept apart from personal ones, and it's the IRS's own guide to keeping records.

An LLC or a corporation is different. The company is a separate legal person, and mixing its money with yours (lawyers call it commingling) can weaken the liability protection the entity is meant to give. If you've formed one, open an account in the company's name before the first client payment.

Pros and cons for a sole proprietor

What you need to open one

The SBA's checklist lists what banks usually ask for. Requirements vary by bank, so check before you go.

• An employer identification number (EIN), or your Social Security number if you're a sole proprietor. The EIN is free from the IRS and lets you keep your SSN off W-9s too.
• Business formation documents, if you formed an LLC or corporation.
• Ownership agreements, if there's more than one owner.
• A business license, where your city or state requires one.
• A DBA (assumed name) filing, if you'll take payments under a name other than your own.

One insurance detail most people miss

The FDIC treats a sole proprietorship's account as the owner's personal single account, not as a business account. Your business checking and your personal savings at the same bank share one $250,000 insurance limit. An LLC or corporation gets its own $250,000. For most freelancers this never matters, but if your tax savings and your business balance together pass $250,000 at one bank, spread them across two banks.

A setup that takes one afternoon

1. Get a free EIN online from the IRS if you don't want to share your SSN with clients.
2. Open business checking. Put this account on every invoice and in your payment processor's payout settings.
3. Open a savings account next to it for taxes. Move your set-aside percentage there each time a client pays (see how much to set aside for taxes).
4. Pay business costs only from the business account or a card tied to it.
5. Pay yourself with a transfer to personal checking, once or twice a month. For a sole proprietor that transfer isn't an expense; it's just moving your own money.
6. If a personal cost slips onto the business card, note it and pay it back with a transfer. Don't log it as an expense.

Doing this in SoloWOS

SoloWOS doesn't connect to banks. You log business expenses with receipts yourself, which is quicker when the business account holds only business transactions: each line on the statement becomes one expense. The monthly report then shows income from paid invoices next to those costs. When you're ready to turn the month into a statement, the freelance profit and loss template shows the layout, and how long to keep receipts covers what to file away.

This is general information, not legal or tax advice. If you've formed an LLC or corporation, ask your accountant or lawyer how to handle owner draws and reimbursements.