If you're a small-time independent contractor, it may feel like you straddle the line between owning a business and having a regular job. Unfortunately, this gray area is mostly an illusion. In the eyes of the law (and the IRS), independent contractors are fully self-employed business owners. As a result, it's worth looking at your finances from the perspective of a small business.
One critical aspect of business ownership is separating your personal finances from your business finances. Business banking products, such as checking accounts and credit cards, can help you achieve this separation, even if it sometimes feels like a challenge.
Why Do You Need a Business Checking Account?
The short answer is that you don't need to open a checking account for your business. You aren't legally required to separate your finances in this way, so it's perfectly fine to use your personal accounts for business purposes. Many independent contractors naturally follow this route because they have few business expenses and do not distinguish between business revenue and personal income.
While it's certainly possible to manage your business in this way, it's rarely the best approach.
Why Should You Want a Business Checking Account?
The advantages of small business checking are numerous, even for tiny businesses and independent contractors. By opening a separate account, you can maintain a clear distinction between personal spending and spending for your business. This distinction is beneficial even if your total expenses for a year only amount to a few hundred or thousand dollars.
Your business account also provides a natural place to store money earmarked for specific business-related expenses, such as paying self-employment taxes at the end of the year. By keeping your money aside, you'll avoid spending cash that you need to meet obligations. Restricting this account to other business-related expenses also provides a convenient record for tax purposes.
Many accounts also include other features that can be helpful to self-employed individuals. For example, many banks offer invoicing tools that can simplify how you bill clients and receive income. Using tools integrated directly with your bank account can make it easier to track and collect revenue, reducing the amount of time you need to spend on unpaid administrative tasks.
How Can You Choose the Right Account?
Fortunately, choosing a business checking account doesn't take much work. As a small business owner, you'll want to look for many of the same features that make an excellent personal checking account. Consider accounts with low minimums and $0 or low-cost monthly fees. Many business accounts are free, and some may even include cash bonuses for deposits.
Since selecting an account is so easy, there's no excuse for continuing to mix your personal and business finances. Opening a new business checking account will help you start down the path to elevating your independent contractor business to a whole new level.
Contact a bank like FNCB Bank to learn more.