Solo proprietor - separate bank account needed?

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ge1
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Solo proprietor - separate bank account needed?

Post by ge1 » Mon Sep 24, 2018 5:05 pm

My wife has started working as a sole proprietor this year. She only has one client, there are no plans to add additional clients and she has no employees. She may even start working for that client at some point as a W2 employee.

I understand that from a tax perspective there may be benefits of having a separate business bank account, however I wanted to ask if this is really necessary in her case? Her expenses are very limited, business trips are paid directly by the client. We are also opening a Solo 401k plan, but I assume the funding for that plan could come from her regular checking account as well?

thanks in advance

badger42
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Re: Solo proprietor - separate bank account needed?

Post by badger42 » Mon Sep 24, 2018 5:17 pm

A separate checking account makes recordkeeping much easier, but isn't strictly necessary. I would say the same thing about a business credit card (which really does make tracking your expenses much easier)

However, given factors like the lack of other clients, the larger problem is likely that your wife is actually an employee - see https://www.irs.gov/businesses/small-bu ... r-employee, and consider walking through the questions in form SS-8.

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Bogle7
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maybe

Post by Bogle7 » Mon Sep 24, 2018 6:22 pm

It depends.
Are the checks made out to “Mary Smith” or to “Xyz Enterprises”?

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gasdoc
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Re: Solo proprietor - separate bank account needed?

Post by gasdoc » Mon Sep 24, 2018 7:38 pm

Be sure to check out the earlier threads on this topic. I think most of the experts say that you do not have to keep a separate checking account for the IRS. It is for your personal record keeping purposes. I am in the process of dissolving my corporation, and will soon be a sole proprietor again. I do not plan to keep a business checking account or credit card. I do, however, keep folders where I meticulously keep track of all ingoing revenues and outgoing expenses. Hope this helps.

gasdoc

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TheAccountant
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Re: Solo proprietor - separate bank account needed?

Post by TheAccountant » Mon Sep 24, 2018 8:31 pm

I would do it just to make bookkeeping that much easier.

Is she using a dba? It would be a good idea to get an EIN if she doesn’t already have one as well as proper insurance.
Making cents out of every dollar.

Cyclone
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Re: Solo proprietor - separate bank account needed?

Post by Cyclone » Mon Sep 24, 2018 8:52 pm

Her bank probably will not want her to use her personal account as a business account. Certain regulations apply to consumers, but not businesses.

JBTX
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Re: Solo proprietor - separate bank account needed?

Post by JBTX » Mon Sep 24, 2018 9:50 pm

I've never had a separate business account. I don't think it is necessary or required. As long as you have a way to track and segregate revenue/expenses.

Having said that, it may be cleaner, and if you were audited it might provide cleaner segregation.

mrmass
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Re: Solo proprietor - separate bank account needed?

Post by mrmass » Tue Sep 25, 2018 6:12 am

badger42 wrote:
Mon Sep 24, 2018 5:17 pm
A separate checking account makes recordkeeping much easier, but isn't strictly necessary. I would say the same thing about a business credit card (which really does make tracking your expenses much easier)

However, given factors like the lack of other clients, the larger problem is likely that your wife is actually an employee - see https://www.irs.gov/businesses/small-bu ... r-employee, and consider walking through the questions in form SS-8.
I agree. Sounds like she is really an employee disguised as a consultant. the IRS hates this. If her "client" pays her in her name as opposed to "DW Enterprises" then she is likely considered an employee in the eyes of the IRS.

To help prevent that classification she should get her own EIN and have the company pay "DW Enterprises" and have her open up a bank account.

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