Do I Need A Business Account for My Side Hustle?
Side hustles. Bless them. Whether it's working in the gig economy, developing an online platform in your niche, freelancing, or buying and reselling stuff online, side hustles help pad our incomes and often serve as a stepping stone to financial freedom for those in debt or what becomes a thriving business. Since the size and scope of side hustles can vary widely, it can be confusing to know when to begin keeping those financial assets separate from your personal ones.
How do you determine if you need a business account for your side hustle? The best way to decide is to understand the risks and benefits of a business account and how it compares to a personal account.
A side hustle does not have to be created with the intention of turning it into a business. Some people have side hustles for purely transactional reasons — they want the income or simply need money. However sometimes what starts as a way to earn extra cash can grow into more than you originally thought. If your side hustle is growing into a business, a separate checking account will definitely be needed.
One important reason is because the IRS requires any incorporated business to have a business bank account. A business account is also a necessary prerequisite before you can apply for a business loan. Even if you don’t think your business will ever need a loan, it’s a good idea to be prepared for the scenario just in case.
Additional benefits of a business account include:
Liability Protection for You and Your Business
If your business is legally incorporated in any way, your personal funds will be protected if your business can't pay its debt. Alternatively, your business' credit score won't suffer if you face a personal financial crisis.
Fewer Tax Headaches
If you have a business checking account you are able to take advantage of tax deductions and credits available to small business owners. In addition, you can help avoid other tax problems that can come from combining personal and business finances, such as an audit.
Professional Business Image
Clients and vendors will be able to pay invoices directly to your business instead of your personal account. A business account also allows you to process credit and debit card payments, something most consumers expect as a payment option.
Conversely, let’s consider why you may not want to open a business account. At the top of the list is the accompanying banking fees. Banks often charge maintenance fees for a business checking account, although these sometimes can be waived if you meet certain minimum balance requirements each month. These requirements are often low in order to help small business owners meet them. You may also get a break on these requirements if you have a personal account at the bank where you're opening your business account. With these fees and other requirement variations, it's important to remember that banks want your business and will often work with you to be able to hold your accounts, especially local banks and credit unions.
One additional downside to a business checking account is the extra work you'll have to put into your personal accounting. Keeping track of business costs and expenses can be an extra hassle, but can also be worth it once it comes time to file your taxes.
With many pros to opening a business checking account, and very few, manageable cons that probably don't outweigh the benefits, opening a business checking account for your side hustle is a good idea if you're going to need to process transactions using a credit card, if you may want to apply for a business loan someday, if you want to present a professional image to clients and vendors, or if you can open one at a very low cost.
Bundlefi can make finding a bank to do business with simple and easy. Visit our online account opening portal, enter the details for the account you want to open (in this case a business account), and immediately get presented with options for banks in your area, including their required fees, account requirements, and special offers. From there you can quickly open the account you need and you're back to business.