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When you first started your business, especially if it began as a side gig, you probably just used your personal bank account to manage your income and expenses. Somewhere down the line, though, you have to make the choice to open a business account or stick with your personal account. We’re going to go out on a limb and say you should definitely keep your business and personal finances separate.

Why? Let’s take a look at 7 reasons why you want to consider it.

1. Deductions

Are taxes coming up and you want to reduce your tax obligations by claiming deductions? You can do that even if you use your personal bank account, sure, but it’s much easier to track your documents and manage business expenses when they all come out of the same funding source. This prevents you from confusing the time you bought printer paper at your local big box store from all the other times you bought groceries there!

2. Taxes in General

Speaking of taxes, tax time is already a mess if you keep everything separate. When your personal and business finances are mixed, it’s going to be that much worse. Going through simple transactions becomes that much tougher, especially when the amount of income you deposited doesn’t add up to the amount of income on the 1099’s your clients sent you.

3. Professionalism

You’re trying to establish yourself as a real, professional business. The difference between a client or customer writing a check out to “Penny Smith” versus “Iowa’s Best Coffee” is huge. It sets a precedent for both the public and for you. Having a business account lets you maintain the level of professionalism you want.

4. “Hobby Business”

While the IRS generally doesn’t care if you consider your business a hobby or not (as long as you’re paying taxes on your income), they do care if you’re making deductions on something they don’t see as a “real” business. You must show a profit in three years out of five so you’re not considered a “hobby business.” It’s much easier to prove this 3 of 5 rule if you have a business account.

5. Mental Health

If you’re taking your business seriously, you want it to run as smoothly as possible. This includes your finances and maintaining a healthy growth pattern. When mixing your personal and business finances, you run the risk of getting an inaccurate view of your company. This can cause strain on not only the business but your mental health.

6. Reports

Growing your business also involves running reports to see where you truly stand. GoDadddy Online Bookkeeping automatically pulls in your business’s income and spending and creates reports like your “Profit & Loss or “Top Vendors.” Mixing business and personal income will confuse these reports and keep you from seeing a clear snapshot of your business’s financial health.

7. Incorporation

Thinking of incorporating your business? Then you’re going to have to keep personal and business finances separate. No matter if it’s a corporation, a partnership or incorporated sole proprietorship, the IRS will require you to separate the two worlds. If this is ever going to be something you do in the future, you might as well start it now. It will help ease the process going forward and prevent any big issues that might pop up during the transition.

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