Does the IRS really care if I keep separate bank accounts for my small business? | MyAdminMyWay
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Does the IRS really care if I keep separate bank accounts for my small business?

In a word, no, the IRS does not care whether you keep separate bank accounts for your small business. What you have to be able to do is

  • Show that you are seriously running a business for profit and
  • Prove it by producing the records.

It’s easier to do this if you are using different bank and credit card accounts for personal and business transactions.

With separate bank accounts, you could totally ignore (for business purposes) all of your personal transactions because there would be no risk of accidentally counting a personal transaction as a business one.

You must keep documentation and categorize all of your business transactions. If you have them mixed up with your personal transactions you have to be more careful and you have to “handle” every transaction to create the separation of business from personal.

On the other hand, since you will also, hopefully, want to keep track of your personal expenses and will thus be categorizing them as well, having the transactions in separate bank accounts doesn’t really save you that much effort. But, as I said, you do have to be more careful.

I have successfully guided clients who only used one bank account through both IRS and state audits. All separation of personal and business was done by proper categorization and record-keeping. In all cases, the audits were passed with no changes.

It’s the intent not the mechanics. You keep both your physical records and your electronic records organized in such a way that shows you are paying attention and can prove that you are not using personal transactions to evade taxes.

I’d love to help you with your basic accounts set-up and with creating a system robust enough to pass an audit. Contact me.

 

Next time, I will help you understand the difference between Cash Accounting and Accrual Accounting.

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