To maintain accurate bookkeeping, it's important to process business-related income and expenses through a designated bank account. Commingled accounts that capture personal and business transactions are not recommended and increase your risk. Heard suggests that you maintain a separate designated bank account for your business.
What is a designated bank account for your business?
A designated bank account enables the business owner or a company representative to conduct 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 designated bank account for your business
- A designated bank account distinguishes business banking transactions under your business name and builds a credit profile.
- Maintaining a separate account allows you to allocate funds specifically for business needs. As a result, you can 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 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 crucial that you maintain separate personal and business bank accounts and that you use your business accounts exclusively for business expenses, not personal ones. If you pay for qualified business expenses using your personal accounts, you'll need to seek reimbursement through an accountable plan if the expense is eligible. For more, see Creating an Accountable Plan
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 it difficult to understand your actual business's financial standing. Significant commingling of accounts can increase the risk of an audit or an 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 already 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 business related transactions from your personal account to your Heard books. To do so, please navigate to Bookkeeping > Transactions, then click + Add Transaction at the top right of the page. From there, you can upload a single transaction or multiple transactions.
If you're uploading multiple transactions, select "Add Multiple Transactions." Then, Download Template, enter your transactions in the template and Upload Spreadsheet.
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. For more, see Creating an Accountable Plan
Open a business bank account
If you don't have a business bank account yet, or you're ready to open a new one, Heard Business Banking, powered by i3 Bank, is the simplest way to set it up. It's built for therapists, included in every Heard plan at no extra cost, and your transactions sync to your Heard books automatically. No monthly fees, no minimums, and your Heard Visa Debit Card is included.
Do I need to be an LLC to open a business bank account?
No, you do not need to register your business as an LLC to open a designated bank account for it. Some banks may require an EIN to open a business bank account, for more see What is an EIN and why do I need one?
You can open a personal bank account designated for business transactions.
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.