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Does your side hustle need a separate bank account?
Dec 2 , 2024 | 5 minute read
If your side hustle has turned into a small business, it deserves its own bank account – here are five reasons why.
With a growing number of people selling crafts on Etsy, dog-sitting on Rover, snapping wedding photos on weekends or vending homemade baked goods, it’s clear that side jobs are trending. In fact, according to a recent study by McKinsey & Company published in 2023, approximately 40% of the U.S. workforce is now engaged in some form of independent work, including gig economy activities.
Beyond the potential to express passions outside of the traditional 9-to-5, these side hustles can also provide extra income. And, when a hobby evolves into a small business, you may want to keep personal and business finances separate. Read on for five reasons to open a business bank account.
1. Monitor your business finances
As your side hustle expands, it's likely that your costs will also increase – consider website fees, shipping, and the cost of products or materials. At this stage, it might become more difficult to separate personal and business-related spending. A separate business bank account allows you to easily track expenses and earnings, ensuring you don’t spend more than you bring in.
2. Ease tax filing
No matter how much (or how little) income your business brings in, it needs to be reported to the Internal Revenue Service. By opening a bank account for your business, you’ll avoid the hassle of combing through your personal checking for business income and possible deductions come tax time.
To determine if your side hustle is a business, consider these factors outlined by the IRS: Do you operate your activity with a serious, business-like purpose? Is the income from the activity essential to your livelihood? Do you actively work to increase the activity's profitability? While no single factor is definitive, answering "yes" to multiple questions suggests you may be running a business. For a deeper understanding, consult the IRS guide on this topic.
3. Business banking makes it official
Many side gigs start as a sole proprietorship – meaning, a business owned and run by one person, with no legal distinction between enterprise and operator. But as it flourishes into a small business, you may want to consider registering as a limited liability company (LLC) or corporation. A dedicated bank account can enhance your business's credibility, simplify tax preparation, and provide an additional layer of asset protection. By separating personal and business finances, you can better manage your financial affairs.
4. Demonstrate professionalism
You want prospective clients to take you and your business seriously. Using a business-account debit card or checks when purchasing from vendors, or being able to accept payments to a business checking account, sends the message that you are a well-seasoned professional.
5. Establish connections at the bank
Having a relationship with a banker you trust is important, especially if you’re a small-business owner. As your side hustle expands, you may need a loan or a business credit card in the future. If you have a business bank account already in place, a banker has a record of your earnings and expenses at their fingertips. It’ll hopefully make the application process quicker and smoother.
Considering a business bank account for your side hustle? It's a wise move. A separate and easy to open business bank account is a step in the right direction. It simplifies your small business banking needs by keeping your personal and business finances organized. This not only streamlines your tax preparation but also projects a professional image for your venture. As your business expands, a dedicated account becomes essential for efficient operations and future growth.
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