Overview
To maintain accurate bookkeeping, it's important to process business-related income and expenses through a dedicated business bank account. Commingled accounts that capture personal and business transactions are not recommended and increase your risk. Heard suggests that you solely have a business account for your practice transactions.
What is a business bank account?
A business bank account allows the business owner or a company representative to perform banking transactions under the business's name. The IRS recommends that business owners keep separate bank accounts for personal and business transactions.
Benefits of a dedicated business bank account
- A dedicated business account creates a clear distinction of business banking transactions under your business name and building a credit profile.
- Maintaining a separate account allows you to allocate funds specifically for business needs. This can help you monitor cash flow, budget effectively, and make informed financial decisions for your practice.
- Your business bank statements can serve as a record of your financial activity, simplifying tax filing and potentially maximizing deductions.
- Establishing a legal separation between your personal assets and those of your business can provide liability protection, preventing creditors or legal actions against your business from directly impacting your personal assets.
Note: As an S Corporation, it is especially critical that you have separate personal and business bank accounts, and that you use your business accounts only for business expenses, not personal. If you pay for qualified business expenses via your personal accounts, you'll need to seek reimbursement via an accountable plan if the expense is eligible for reimbursement.
What are the risks of a commingled account?
You could expose your business and your personal finances to several risks by keeping a commingled account.
- Time consuming: Any transaction your bookkeeper considers possibly personal will be marked as Needs Review and require you to provide notes regarding each transaction.
- Accuracy of books: Unclear financial records can make understanding your actual business's financial standing difficult. Significant commingling of accounts can increase the risk of an audit or inaccurate tax return.
- Delayed books: It can take more time to sort through personal and business transactions. This can result in delayed wait times for your monthly reports and important deadlines such as quarterly tax estimates, which are calculated based on completed books.
- Exposing your personal assets: if a legal separation is not established between you personally and your business.
- In case of an audit: Commingled accounts pose a higher risk of an audit and make it challenging to demonstrate legitimate business expenses as auditors expect clear recordkeeping.
We ask that you do not connect personal bank accounts to Heard; if you have done so please see How can I stop sharing a financial account with Heard?
What if I have business transactions on a personal account?
You can manually upload all the business related transactions that are within your personal account. To do so, please navigate to Bookkeeping > Transactions, then at the top right of the page, click + Add Manual Transactions. From there, you can upload a single transaction or multiple transactions.
If you're uploading multiple transactions, select "Add Multiple Transactions." Then, you can download the import template.
Note for S Corporations: Certain qualifying expenses must be reimbursed through an Accountable Plan. This covers "Employee Reimbursement Expenses," including home office and business mileage expenses. Please do not include these expenses in your records. Instead, reach out via Messages to inquire about support for the Accountable Plan.
Open a business account
You can choose to open a business account with one of the major banks Heard therapists use: Bank of America, Wells Fargo, Chase, U.S. Bank, Relay Financial, and PNC.
What if I have personal transactions on a business account?
If you have processed a personal transaction on your business bank account, you can mark the transaction as personal in your Heard account. This will enable your bookkeeper to categorize the transaction as personal and exclude it from your business profit and loss.
To do so, go to Bookkeeping > Transactions, locate the transaction, and under Type, select Personal.
Resources
- Why should I keep records? | Internal Revenue Service
- How can I stop sharing a financial account with Heard?
- Bank Statements at Heard