Note: We are not legal experts or tax preparation professionals, so always consult an accountant, tax prep professional, or attorney if you have questions about your freelance bank account. This information is aimed at freelancers in the United States. Freelancers in other locations may find this information useful for determining what questions they need to ask and answer based on their country, region, or city.
Understanding the requirements of your business structure is the first step when it comes to figuring out what to do about your freelance bank account.
If you choose to create an LLC or corporation, your business name needs to be on the bank account. And while you don’t need to open a bank account for your LLC, most experts recommend it in order to maintain the benefits of limiting your liability (the whole reason you set up an LLC, right?).
Many freelancers are able to operate as sole proprietors. So, we’ll focus on that structure since it’s a bit simpler.
Sole proprietors can use their legal name as their business name. And you do not need a separate business account—legally. But you definitely need to keep your business income and expenses separate from your personal.
We recommend opening a second account to use as a business account. The bank may call the account a “personal” account, but you’ll use it strictly for your business-related income and outflow. Deposit all client payments into that account, and make all business purchases from that account.
Why Separate Your Freelance Bank Account from Your Personal Account?
Essentially, the most effective way to run your business is to have two accounts. It’s much easier to avoid mistakes when business income and expenses are completely independent from personal. And since many freelancers use PayPal or Venmo for both business and personal use, we recommend practicing the 2-account rule for these platforms, too!
But mistakes are bound to happen, so we recommend going through your personal accounts at least once per month. Check to make sure you haven’t inadvertently made a business purchase from that account.
Keeping your books clean is as simple as copying your business transactions over to an Excel or Google Sheet and going through once a month to label each transaction (is it something that you can deduct come tax time?). Found a stray transaction? Remove it from your Sheet.
What Bank Should I Use for my Freelance Business?
Wondering which bank to use for the second account? If you like your banker for your personal account, start there!
Here’s the big takeaway for sole proprietors using their legal name: It is necessary to have one account for your freelancing income/expenses, and a second for your personal income/expenses—even if both accounts are technically personal bank accounts.
What about DBAs?
If you’re running your business using a Doing Business As (DBA), you need to ensure your account allows you to cash checks made out to your DBA name. Ask your bank if it will let you add a DBA to a personal account, or if you need an actual business account.
Otherwise, you can ask your clients to fill out checks or other types of payments using your legal name. Most of your clients, if they’re organized, will have you fill out a W-9 as a freelancer so they know who to make payments out to and where to send a 1099 come tax time.
How to Open a Business Bank Account for Your Freelancing Business
Opening a business account (instead of a personal account which you simply use for business) may require additional documentation.
- Most banks will need your Employer Identification Number.
- Depending on your structure, you’ll need your business formation documents.
- And you might need to have your business license.
But each bank has slightly different requirements, so always check there first to find out what you need.
If you choose to or must open a business account, avoid bank programs and offerings that you don’t need. For example, most freelancers don’t need a line of credit. Our rule is: we always steer clear of unnecessary fees!
One More Rule for Freelance Bank Accounts
At the bare minimum, all freelancers need a separate account into which they can save money for taxes. Most of us need to pay quarterly taxes, but even if you don’t, it’s important to put a percentage of your earnings aside. The last thing you want is to be caught unprepared with a big tax bill come April!
Your turn! Have you opened a business bank account? Why or why not?