5 Reasons For Not Mixing Personal And Business Banking

Business Banking How Businessmen Can Manage Their Funds and Increase Profits

EXECUTIVECHRONICLES.COM | One of the basics of starting a business is setting up a business bank account. However, many of the new business professionals mingle their personal and business funds. 

banking 2Most notably, mixing of the funds is common among self-employed proprietors, consultants, and marketers. Further, small-scale business owners often try to process their business transactions via personal bank accounts to reduce expenses or bank fees. If you also fall into this category, you might be creating problems for your business in the future.

Whether you have a small business or own a multi-dollar company, there are several reasons to separate the business and personal finances –

Tax Time Difficulty

When the tax time rolls around, you have to declare all the expenses and income related to your business. At that time, all your business transactions need to be separated from personal transactions. If you have all your transactions on the same statement, it is going to be a time-consuming nightmare to separate them. 

On the other hand, if you have a separate account, it would be easy for your tax professional to prepare your financial documents.

banking 3You Might Misuse Funds

Moreover, if all the funds from your personal and business lives are together, you may misuse the funds. For example, suppose your business is not going well. In such a situation, you are likely to use your personal resources out of the bank account. Sometimes, you might be using business money to pay for your own expenses. It creates a negative impact on the business and your chances of success.

Missed Deductions

Being a business owner, you are entitled to different tax deductions, and you need to determine what can be deducted from your business. If all your financial documents and transactions are mingled, it becomes challenging to pick out the individual deductions. The worst thing is that you may overlook some of the deductions. It means you will be paying more money to the IRS than you should. 

By separating your business and personal banking, you can easily identify the deductions that you qualify for your business.

banking 1Hobby Business Classification

Many people choose to get involved in a hobby business which doesn’t bring so much revenue. This means that they aren’t trying to get rich with the business, but are doing something they enjoy.

However, despite running a business, if the expenses you incur go through your personal bank account, you won’t be able to deduct business expenses. The reason is that mixing the IRS (Internal Revenue Service) has specific guidelines to determine whether an entity is a business or a hobby. Mixing the personal and business expenses might give the IRS an impression that you are pursuing a hobby, not a business.

Moreover, every time you file taxes, the IRS will be auditing you. To make the process easier, you should consider separate business and personal banking.

Adds Credibility To The Business

Using a business account adds a note of professionalism to your company. If you write checks to your clients using your name, it signifies that you aren’t a professional business venture. However, a check from your business account will convey that you are serious towards work and clients.


Blending the personal and business baking can confound budgets, risk the business, and prevent you from getting tax advantages. Therefore, isolating them is something all the business owners ought to do. Whatever the cost of opening a separate business account is, it will provide long-term benefits to your business.