Do Freelancers Need a Business Checking Account?

Quick Answer

Freelancers aren’t required to open a business checking account, but separating personal money from business funds is a good idea. Doing so can help you keep better track of expenses to write off at tax time.

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Deciding how best to manage your money is one of many important financial decisions to make while freelancing. Opening a business checking account isn't required for freelancers, but it's often a good idea because it can streamline your finances and make it less of a hassle to file your taxes.

Read on to learn what a business checking account is and why opening one can help you thrive as a freelancer.

What Is a Business Checking Account?

A business checking account is a checking account that's used to manage business operating funds. Business accounts come with some of the same features as personal accounts: You can deposit cash, withdraw cash, make debit card payments and more.

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However, in addition to those features, business accounts may offer account holders more business-related options, like cash flow management tools, integration between your business account and accounting system and additional cards for employees.

When you apply for a business account, financial institutions will typically ask for the following information:

  • Employer Identification Number and/or Social Security number
  • Business formation documentation
  • Ownership agreements and business licenses

Once the business account is open, you can deposit payments and handle other banking transactions, such as setting up automatic bill payments for different services. For example, invoices for web hosting, project management software and more could all be paid from your business account.

Why Should You Keep Business and Personal Accounts Separate?

A key benefit of having both a business and personal account is that it clearly separates your business's finances from your personal finances. Here's a closer look at five reasons you could benefit from opening a business account:

  1. Limit your liability. Having business finances and personal finances separate could limit your personal liability if someone sues your business.
  2. Keep better track of expenses. Having a business account can make budgeting your money and monitoring your business's cash flow easier to manage.
  3. Sock away money for quarterly tax payments. Self-employed workers have to make quarterly tax payments to the IRS since an employer doesn't withhold tax. If tax savings are kept in a separate business account, you may be less inclined to spend what you owe Uncle Sam.
  4. Maintain cleaner records for tax season. Keeping a separate account for business makes it easier to pull expense records to claim self-employed tax deductions and file taxes at the end of the year.
  5. Get access to credit lines. Financial institutions that offer business checking accounts may also offer credit lines you can tap into if you're cash strapped because an invoice hasn't been paid or you're experiencing a lull in business.

What About a Business Credit Card?

Business credit cards offer a credit line with a limit you can use for business transactions. Opening a business card could be a good way to cover expenses you plan to pay off within a month or two. Below are a few business credit card perks:

  • Borrow what you need. If you only need to borrow small sums every so often, using a credit card may be better than applying for a business loan because it gives you the flexibility to borrow money as expenses come up.
  • Build business credit. Using a business credit card and making on-time payments could help you build business credit so you can qualify for larger credit lines and business loans in the future.
  • Earn rewards. Business credit cards may offer high-value rewards that you could redeem for travel, gift cards and more.

During the application, business card issuers typically ask for your business's revenue, and you'll need to provide tax numbers like your Employer Identification Number or Social Security number. Your business's credit will likely be checked, and may be negatively affected if you don't keep up with card payments.

Like personal credit cards, interest is charged to business credit cards if you don't pay off your balance each month, which is something to be mindful of. If you borrow more money than your business can pay off, interest charges could be costly, and you could end up in a cycle of debt that makes your business less profitable.

The Bottom Line

Many mobile banks and major banks offer business checking accounts, and some charge no monthly fees. When shopping around for an account, compare fees, minimum balance requirements and features to find the best option for your business.