When self-employed do you need a business bank account?

Tax Simplification The IRS recommends that all small business owners have separate bank accounts. While a sole proprietor—an individual who owns a business and is personally responsible for its debts—is not legally required to use a business checking account , it's still a good idea from a tax perspective.

Do you have to have a business bank account if you own a business?

As soon as you start accepting or spending money as your business, you should open a business bank account . Common business accounts include a checking account, savings account, credit card account, and a merchant services account.

Can you use personal bank account for self-employed?

Can a sole trader use a personal bank account? As a sole trader, you're not legally required to have a business bank account opens in new window. You can use your personal bank account for all business transactions .

Do I need a business bank account for side hustles?

If your side business is incorporated or an LLC, the answer is a cut-and-dry “ yes, you need a business bank account .” But if it's a hobby that you work on during your spare time to pick up some extra cash, then the answer is more along the lines of “you don't have to, but you should.” Here's why!

Which bank is best for self-employed?

Tide : Best Overall Sole Trader Bank Account with No Fees Tide offers a popular digital-first business bank account with no monthly fees. Its free account comes with no monthly fees and is ideal for sole traders. Some potential benefits for sole traders using Tide include: Quick and easy account opening process.

What kind of bank account do self employed have?

If you ever need to apply for finance (like a credit card or loan) then having a business bank account will be necessary. If you ever get selected by HMRC for an in-depth audit then having your transactions kept separate will make things a lot easier.

Do you need a business bank account for 1099?

Benefits aside, it's actually required for businesses to track their finances separately, depending on what kind of business entity you've registered your practice as. Sole proprietors are not required to take this additional financial step, but all other business entities must keep their accounts separate.

Do I need to open a business account as an independent contractor?

Can I Open a Business Bank Account as an Independent Contractor? If you work as an independent contractor, you might think you don't need the same things that a business with employees might need, but a business bank account should definitely be on your list .

Do you need a business bank account for taxes?

You also make it easier to manage invoices and tax deductions. Some other reasons for having a separate business bank account are: Simplify tax preparation. If you use dedicated business accounts rather than personal accounts for your business transactions, it will be easier to file your taxes come tax season.

Do You Need a Business Bank Account If You're Self-Employed? (2024)

If you’re self-employed, whether as an independent contractor, freelancer, consultant or another type of small business owner, chances are you have a lot of questions about how to best handle your finances. Among them: “Do I need a business bank account if I’m self-employed?”

The answer in many cases is “yes” and we’ll explain why here, as well as offer advice for choosing the best business bank account if you are self employed.

Do you need a business account if you are self employed?

While you technically do not need a business bank account if you are self-employed and operate as a sole proprietor, you may find yourself later regretting your decision not to get one. A separate business bank account can be helpful in myriad ways. It allows you to:

Track income from freelance or independent contractor or consulting work,
Itemize expenses you may be able to deduct,
Make bookkeeping and tax time less stressful,
Budget for taxes and recurring expenses, and
Get financing in the future.

If you want to be successfully self-employed, setting up a business bank account is one step in creating a financially healthy independent business.

If you have formed an LLC, S Corp or other legal business entity then you absolutely must get and use a business bank account. Not using one can put your personal assets at risk.

If you’re an independent contractor, do you need a business bank account? Again the answer is “probably yes.” As an independent contractor you will likely report your income and expenses to the IRS on a Schedule C form. (That can vary, though, depending on the type of business structure you choose.) Having a separate business bank account makes it easier to keep track of that information.

The Best Business Bank Accounts for Self Employed

If you are self employed, including working as an independent contractor, finding the best business checking account will be different than it will be for a larger small business with employees. Here are some options to consider.

Small Business Checking by Bank of America

Bank of America offers banking solutions to help grow your small business. Take advantage of accounts designed to fit a variety of needs.

Chase Business Complete Banking℠

There are a variety of reasons to consider Chase for your small business banking needs:

Built-in card acceptance.You can also accept card payments anytime, anywhere in the U.S., and get transparent pricing with Chase QuickAccept^SM.
Same-day deposits with QuickAccept^SM. Free up the cash you need to keep your business moving forward with same-day deposits at no additional cost.
Alerts to help you stay on top of your account activity. Easy account management through Chase Business online and the Chase Mobile® app. Unlimited electronic deposits, ACH and Chase Quick DepositSM. Convenient access to 16,000 ATMs and more than 4,700 branches.

Online & Mobile Small Business Checking by Bank Novo

Novo offers powerfully simple business banking through their free checking account with debit card access, no hidden fees and zero minimum balance requirements. Novo allows you to integrate with the business tools you already use, like Xero and TransferWise, and empowers you with a dashboard to see the financial health of your business at a glance. You can apply for an account in under 10 minutes on any device so you can start managing your business finances all in one place and on the go.

What kind of bank account do I need for self employed?

Yes, you can get a business bank account if you are self-employed. Before you open a business bank account, it is a good idea to first get a Taxpayer Identification Number (TIN) or Employer Identification Number (EIN) as some financial institutions will require that. (Note the financial institution will also ask for your Social Security number as banking regulations require them to verify your identity.) However, you do not have to have a corporation or LLC to get a business bank account as many financial institutions; operating as a sole proprietorship can be just fine.

Most business owners will start with a business checking account. This will also give you access to a business debit card which you may need to withdraw cash or make cash deposits at an ATM.

As your income grows, you may also want to get a business savings account.

Another option is an account that allows for subaccounts, so you can put some of your money aside for taxes or recurring expenses. These work similar to the envelope budgeting system, allowing you to save money toward specific expenses.

Make sure you understand the cost of the account.Even free business checking accounts are going to have some some fees associated with them.

Will there be monthly fees and if so, how can you avoid them?
What other fees does the account charge?

Review the features that are important to you, such as:

How robust are the mobile banking and online banking features?
Can I deposit checks on the mobile app?
Does it integrate with my bookkeeping software?

Compare the Best Business Checking Accounts

Opening a business checking account can increase your chances of getting financing and simplify your cash flow management. Use our research to quickly and easily find the right account for your business.

Compare Now

Can I use my personal bank account for business?

Yes, you can use your personal checking account for your business if your business is not incorporated. (If you have created a separate legal entity for your business such as an LLC, S Corp or C Corp, you absolutely should use a business bank account to help protect the integrity of your corporate structure.)

If you’re a startup or you have a side hustle, you’ll likely be tempted to stick with your personal banking account simply because it’s easier than opening a new bank account.

But if you mix business and personal transactions all kinds of problems can arise. You may lose track of business expenses that may have been tax-deductible, or you may accidentally claim personal expenses that shouldn’t have been deducted. (The IRS requires you to clearly document business income and expenses.)

You may have trouble budgeting for periodic expenses in your business.

And most importantly you may lose track of how much you’re actually making as an independent contractor, freelancer, consultant or small business owner.

In short, if your goal is to remain self-employed you should separate your business and personal expenses, and that means getting a separate bank account for your self-employment income and expenses.

Tips on managing finances when self employed

The most important thing a self-employed business owner can do to better manage their finances is to separate their business and personal finances. This step alone will give you valuable insights into how much you’re actually making in your business. That’s because you’ll be able to see business income and most or all of your business transactions in one place, rather than guessing.

When you have your own business, another crucial step is to set up a proper bookkeeping system from the start, even if you are operating as an independent contractor or freelancer. Invest in accounting software and either take a class or hire someone to set it up properly for you. You can always hire a bookkeeper to help as your income grows, but having it set up right from the beginning will save you a lot of headaches.

Get a business credit card for your business purchases. A credit card can help with cash flow by giving you extra time to pay for business purchases and you may be able to earn lucrative perks with a rewards card. The good news is that even new business owners may qualify based on personal income and personal credit.

Make sure you to use your business bank account to document business income. If you get income through multiple sources (invoicing, Paypal, Amazon etc.) try to have it all deposited into your bank account. That way, if you try to get a small business loan in the future you’ll be able to show the lender how much money your business is bringing in. This can be crucial for qualifying for many types of small business financing.

This article was originally written on October 21, 2021 and updated on January 18, 2023.

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As an expert in finance and small business management, I've accumulated extensive experience and knowledge in helping self-employed individuals navigate the complexities of financial management. I've assisted numerous independent contractors, freelancers, and consultants in optimizing their financial strategies for long-term success.

In the provided article, the author delves into the crucial topic of whether self-employed individuals need a business bank account and provides valuable insights into the associated benefits and considerations. Here's a breakdown of the key concepts covered:

Importance of a Business Bank Account for the Self-Employed:
- The article emphasizes the significance of having a separate business bank account for self-employed individuals, even if they operate as sole proprietors.
- The benefits include tracking income, itemizing deductible expenses, simplifying bookkeeping and tax processes, budgeting for taxes and recurring expenses, and facilitating future financing.
Legal Structure and Business Bank Account Necessity:
- If a self-employed individual has formed a legal entity such as an LLC or S Corp, having and using a business bank account is essential to safeguard personal assets.
Options for Business Checking Accounts:
- The article recommends specific business checking account options tailored for the self-employed, including Bank of America's Small Business Checking, Chase Business Complete Banking, and Novo's Online & Mobile Small Business Checking.
- Features such as built-in card acceptance, same-day deposits, alerts, and integration with business tools are highlighted.
Types of Business Bank Accounts:
- It suggests starting with a business checking account, which provides access to a business debit card for transactions. As income grows, considerations for a business savings account or an account with subaccounts for specific expenses are mentioned.
Choosing the Right Business Bank Account:
- Emphasis is placed on understanding the costs associated with business checking accounts, including monthly fees, and reviewing features such as mobile and online banking capabilities, check deposit functionality, and integration with bookkeeping software.
Using Personal Bank Account for Business:
- The article advises against using a personal checking account for business transactions, highlighting the potential risks and complications, especially for tax purposes and business expense tracking.
Financial Management Tips for the Self-Employed:
- Practical tips are provided for effective financial management, including separating business and personal finances, setting up a proper bookkeeping system, obtaining a business credit card for purchases, and using the business bank account to document income.
Long-Term Financial Strategies:
- The article concludes by stressing the importance of separating business and personal finances for a clearer understanding of business income. It also suggests setting up a robust bookkeeping system from the start and acquiring a business credit card to optimize cash flow.

In conclusion, the article serves as a comprehensive guide for self-employed individuals, offering practical advice on financial management and highlighting the importance of utilizing dedicated business bank accounts.