Do I Need a Business Bank Account if Self-Employed?

Disclaimer: Please note that this article contains general legal information and doesn’t contain legal or tax advice, and isn’t intended to constitute legal or tax advice.

Most likely, yes! In some cases, it’s actually required to have a business bank account, while in others it’s more of a recommendation. Overall, a separate bank account protects your business finances and establishes a credit history of all your freelance activity.

In this article, you’ll learn why having a business bank account is crucial for you as a freelancer.

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Do I Need a Separate Bank Account if Self-Employed?

If you operate as a sole proprietor – you aren’t legally required to use a business bank account.

However, I still firmly recommend that sole proprietors open a new account dedicated to business income and expenses. This doesn’t have to be a proper business bank account. It can simply be another current account in which you receive payments from your clients, and from which you pay your business costs (assuming that it’s not against the internal regulations of the bank you chose).

Mixing up your personal and business assets can make the first vulnerable. Running your freelance business without a separate bank account can also create a significant overhead, requiring you (or your accountant) to identify and classify every transfer to or from a personal bank account properly. Having your business banking in order and separated from your personal assets will make it easier for you to sort and identify your transactions, ensuring you don’t miss out on any deductions at tax time.

See how to choose the right business bank account below for more info if you take this route.

On the other hand, if your freelance business is organized as a corporation, it’s a legal requirement to have a business bank account. In the case of forming an LLC, even if it isn’t legally required in your local jurisdiction, you need a separate bank account so you can prove that you and your business are separate financial entities in the event of a lawsuit or liability.

Keep in mind that to enjoy the limited liability protection that an LLC offers there must be a clear divide between your personal and business funds. The first step to keeping them completely separate is to have two different bank accounts. This means when forming an LLC for your freelance business you need a dedicated business bank account to maintain your liability protection.

If you’re still unsure which legal structure is best suited for your freelance business, it’s crucial to carefully consider your choice. For most freelancers, there are 2 main types of business entitiesa sole proprietorship or an LLC. This is essential, since the selected business structure will affect your level of personal liability, tax, accounting responsibilities, and regulations you must follow.

Below you’ll find a quick list summarising the most important do’s and don’ts when starting your freelance business:

Set up separate business and personal banking accountsDon’t mix your business funds with your personal funds
Keep books and records for your freelance businessDon’t fund personal expenses with your business bank account
Document all transfers of money between your freelance business and third partiesDon’t fund your business activities and expenses with personal bank accounts
Choose a bank that meets your private and business needsDon’t automatically choose the bank in which you already have your personal account

How to Choose a Business Bank Account?

When you start as a freelancer, one of your first tasks should be to open a bank account for your freelance business. Look for the right bank for your freelance business needs and take into account, in particular:

  • What service fees you have to pay.
    • Some banks provide free business checking if you maintain a specific minimum balance.
    • Some also let you link all of your accounts together to make it easier to maintain that balance.
  • Whether the bank has a satisfactory online and mobile banking experience, and customer service.
  • Whether it’s easy and free to transfer your funds.
  • Whether it’s easy to use their online bill pay, i.e. pay your reoccurring bills online.
  • Whether there are early termination fees in case you close your account.  
  • Whether their security is up to date – is the bank properly insured?
  • Whether it’s possible to have different currencies on one account.
  • Whether there’s a decent exchange rate.
  • Whether there are any restrictions regarding the business activity you’re engaged in.
  • If you plan to manage your own books – whether the bank software automatically syncs with your accounting software/platform.

In the US, to open a business bank account you’ll primarily need the following three documents:

  • Employer Identification Number (EIN) (or a Social Security number, if you’re a sole proprietorship without employees and you don’t file any excise or pension plan tax returns),
  • Your business’s formation documents,
  • Ownership agreements.

However, some banks may ask for more documents including a business license if required in your situation.

Benefits of Using a Business Bank Account For Freelance Work

  • Separating personal from business transactions
  • Saving time
  • Providing clarity while reporting
  • Helping to identify business expenses
  • Preparing you for your freelance business’s future growth
  • Protecting your assets from legal liability (in particular in the case of an LLC)
  • Making it easier to track your business cash flow
  • Building up your business credit history and rating
  • Simplifying your admin, i.e. business accounting, and taxes
  • Professionalism and credibility
  • Accurate bookkeeping
  • Clear audit trail for the tax authorities
  • Option of a line of credit for the company
  • Required to apply for a business loan
  • Required for incorporated businesses

FAQ – Bank Account for Freelancers

Do I need a business account for my small business?

Yes! Even if there’s no legal requirement for you to open a business bank account, it’s a recommended practice to have one to build your freelance business’s financial presence. If you decide not to open a business bank account, at least consider a separate bank account for your freelance business. It will help simplify your taxes and bookkeeping. Having a separate bank account constitutes protection for your business finances and ensures you don’t miss out on any deductions at tax time. Read more about why you need a business bank account for your freelance business.

What is the difference between a business bank account and a personal bank account?

The main difference between a business and a personal bank account is the purpose of these accounts, their costs, and fees. As a rule, a business bank account is used to manage business finances while a personal bank account is used for personal matters.

Can I use my personal bank account for business?

If you operate as a sole proprietor you aren’t legally required to open a business bank account for your freelance work – which means you can use your personal bank account. However, you may want to consider having one or at least opening a separate bank account for your freelance business. Having a dedicated bank account for your business finances is crucial for keeping track of business income and expenditure, and maintaining accurate financial records.

To run a successful freelance business, you have to stay on top of your finances. Selecting the right bank and setting up a separate bank account for your new business is one of the first steps along with preparing to invoice your future clients. Learn how to invoice for freelance work, and snag a free downloadable invoice template to make your life even easier.