Self-Employed? Here's Why You (Really) Need a Separate Bank Account for Your Business

As someone who’s self-employed, you’ve probably heard a few (or many) times how important it is to separate your business finances from your personal ones.

Haven’t done it yet? Finding, setting up, and using a separate bank account for your business feels like one more thing on your never-ending to-do list. But here’s the thing: it’s important. And it’s way easier than you think.

Let’s take a look at the many benefits of business bank accounts for solopreneurs—and how you can set up your own in just a few minutes (seriously).

Why Should You Separate Your Business and Personal Finances?

If you’ve intermingled your business and personal finances up to this point, it’s understandable that pulling them apart doesn’t seem like a pressing priority. However, continuing to mix them up can lead to some pitfalls, including:

• Compromising your LLC status: When you set up your LLC business entity, you have LLC liability protection—meaning your personal assets are separated from your business assets. For example, if your business ends up in debt, creditors can only go after your business assets (and not your personal ones, like your house or your retirement accounts). But, when you don’t have a dedicated business bank account, you blur these lines and can potentially lose out on those protections.
• Muddying your financial records: Love them or hate them, you need clear records of your business finances. They make tax filing easier and also help you make smarter business decisions. But your business bookkeeping is a lot tougher when you don’t have a dedicated bank account, as you need to pull apart individual transactions. With a business bank account, you know that everything coming in and out of that account is related to your business.
• Missing out on tax savings: When your personal and business finances are a tangled mess, you run the risk of missing business expenses that could be written off to reduce your tax burden. With a separate bank account, you can quickly spot legitimate deductions and save some money.

PRO TIP: Looking to save more money on your taxes? Switching to an S Corporation could help. Check out Lettuce’s Tax Savings Calculator to understand your potential S Corp tax savings. Lettuce users who make $100,000 or more per year save over $10,000 annually in taxes.

Even if you’ve been running your business without a separate bank account, you can take a little comfort in the fact that you likely won’t face legal consequences for doing so.

But splitting your personal and business expenses is a best practice when you’re self-employed—the IRS even directly recommends it. So, take this as your friendly nudge that it’s time to take action and finally set up your business bank account.

Curious if an S Corp is right for you?

Try the Lettuce Tax Calculator to see how much more you can take home each year.

See your savings

4 Benefits of Business Bank Accounts for Solopreneurs

Still not entirely convinced you need to use separate accounts? A dedicated business bank account is more than a formality—it’s a powerful tool for simplifying your business bookkeeping, protecting your business, and even saving some money.

If the potential pitfalls of mixing your finances weren’t quite enough to persuade you, these benefits of a separate account will likely do the trick.

1. Clear Financial Records

Ask any accountant and they’ll tell you that you need clear financial records. They help you understand your expenses and profitability and ultimately make smarter decisions about your spending and growth.

Plus, when it’s tax time or you’re chosen for an audit, a separate account and reliable records can take a lot of the pain out of those processes.

2. Streamlined Business Bookkeeping

You probably didn’t start your business-of-one because you’re passionate about bookkeeping. So, the less time you need to spend managing digits, the better. A dedicated business bank account saves you time and elbow grease by:

• Reducing manual work: You don’t need to spend hours sorting through your personal and business expenses, as they’re already separated.
• Minimizing errors: A separate account means you won’t miss a legitimate business expense or forget to log an invoice payment.
• Automating tasks: With the right accounting system (like Lettuce!), you can automate tedious tasks—like categorizing transactions or paying your estimated quarterly taxes.

3. Maximized S Corp Tax Savings

Every freelancer and solopreneur wants to pay less taxes. But, without a clear idea of your business’ income and expenses, you could be leaving a lot of money on the table.

For starters, changing from an LLC to an S Corp can mean big tax savings. Making the switch doesn’t have to be a time suck. Lettuce will handle the setup of your LLC (if you don’t already have one) and your S Corp election for you.

When you have an S Corp, a separate bank account becomes even more crucial for managing your business finances, correctly classifying expenses, and paying your taxes on time.

As far as saving money? Your separate bank account gives you a clear view of all of your business expenses—meaning you won’t skip any deductions that help lower your tax obligation.

4. Legal and Professional Legitimacy

A business entity separates your business assets from your personal ones. But, the waters get murky if you’re mixing everything in a single bank account, which means you could miss out on the legal protections your business entity is supposed to provide.

Additionally, a separate bank account makes your business look and feel more established, professional, and legitimate—both for yourself and your clients.

Set Up Your Bank Account for Your Business Finances

You’re convinced it’s time to set up a business bank account. Do you need to call your local bank? Or prepare yourself for a towering stack of paperwork? Or find an online option and cross your fingers that it’s legit

Nope. You just need Lettuce. When you sign up for Lettuce, you’re automatically set up with a free business bank account that you access through your Lettuce dashboard.

That’s it. You’ll use that account for all of your business transactions, including depositing invoices, running payroll, purchasing supplies, and paying your taxes. You can get a Lettuce debit card or easily connect your own business credit card to pay for your business expenses.

All you need to do is make sure you handle all of your business transactions with that account, and Lettuce will take care of the rest—like automatically categorizing your transactions, setting aside money for your tax payments, and even making retirement contributions.

With Lettuce, it’s just a few quick clicks to set up a business bank account and an accounting platform that transforms your business bookkeeping from stressful to streamlined.

Keep Your Business and Personal Finances Separate (Not Sloppy)

The advice about setting up a separate account for your freelance or solo business isn’t just oft-repeated—it’s true. Splitting up your business and personal finances helps you protect your business, simplify your accounting, and maximize your tax savings.

Fortunately, reaping the benefits of a dedicated business bank account doesn’t need to be tedious and time-consuming. Get started with Lettuce now and you’ll have your bank account (and plenty of peace of mind) within minutes.