Why separation matters
- Clean records: when every transaction in an account is a business one, bookkeeping is a matter of categorizing, not sorting. The IRS expects your records (opens in a new tab) to support the income and deductions on your return.
- Easier taxes: a tax professional can work from statements instead of guessing which purchases were personal.
- Liability: for an LLC or corporation, treating the business as separate, including its money, is part of what keeps it separate in the eyes of the law.
- Lending: lenders often review business bank statements. A dedicated account shows revenue and expenses clearly, which helps when you get loan-ready.
The SBA’s manage your finances (opens in a new tab) guide covers these basics, and its page on opening a business bank account (opens in a new tab) explains the account itself.
Opening a business checking account
Requirements vary by institution and structure, but many banks and credit unions ask for:
- An employer identification number (EIN), or for some sole proprietors, a Social Security number.
- Formation documents, such as articles of organization or incorporation, or a DBA filing if you use a trade name.
- An operating agreement or ownership details for an LLC, or a resolution for a corporation.
- Government-issued ID for each owner or signer.
- Form the business or register your trade name, and get an EIN.
- Compare a few institutions’ business accounts.
- Open checking for day-to-day money and, if you like, a savings account for taxes and reserves.
- Move all business income and bills to the new accounts and stop using personal ones for business.
- Connect the account to your bookkeeping so transactions flow in automatically.
Comparing kinds of banks
| Kind | What some owners like | What to check |
|---|---|---|
| Traditional bank | Branches, cash deposits and a relationship that can lead to lending later | Monthly fees and the balance needed to waive them |
| Online bank | Often fewer fees and strong software tools | Cash deposit options and customer support |
| Credit union | Member-owned, often community focused | Membership rules and business product range |
Questions to ask a bank or credit union:
- What are the monthly fees, and how can they be waived?
- Are there limits on deposits, transactions, ACH or wires?
- Does the account connect to common bookkeeping software?
- Are deposits insured by the FDIC (banks) or the NCUA (credit unions)?
- What lending products, such as lines of credit, are available later?
Setting money aside for taxes
Many owners open a separate savings account and move a share of each deposit into it, so estimated tax payments and year-end bills do not come out of operating cash. How much to set aside depends on your income and structure, which is a good question for a tax professional. Our small business taxes guide explains the main taxes involved.
Paying yourself
How an owner takes money out depends on the structure. Sole proprietors and partners commonly take an owner’s draw, a transfer from the business account, and pay tax on the business’s profit rather than on the draw itself. Owners who work in a corporation, including an S corp, are generally paid wages through payroll. IRS Publication 334 (opens in a new tab) covers the rules for sole proprietors; a tax professional can explain the rest for your situation.
Record every transfer
Whatever method fits your structure, move money from the business account to your personal account as a recorded transfer. Paying personal bills straight from the business account blurs the line you set up.
A card for business spending only
A business credit card used only for business purchases keeps spending in one place, creates a statement your bookkeeping can import, and is one way some owners start building a business credit history. Card terms vary, and many business cards make the owner personally responsible for the balance. Our first business credit card guide explains how they work.
Red flags
- Paying personal bills from the business account, or business bills from a personal card.
- Accounts whose minimum balances or fees are not clearly disclosed before you open them.
- Cash taken out of the business without any record of what it was for.
Frequently asked questions
Do I need a business bank account as a sole proprietor?
It is not always legally required for a sole proprietor, but a separate account makes records, taxes and loan applications much simpler. LLCs and corporations generally keep their own accounts.
What do I need to open a business bank account?
Banks commonly ask for an EIN or Social Security number, formation or DBA documents, ownership details and ID for each signer. Requirements vary, so check with the institution.
How should I pay myself?
It depends on your structure. Sole proprietors and partners often take owner’s draws, while owners working in a corporation are generally paid through payroll; the IRS and a tax professional can explain the rules.
What is commingling?
Commingling means mixing business and personal money in the same accounts. It makes bookkeeping harder and can weaken the liability protection of an LLC or corporation.