Should You Have a Separate Business Checking Account?

It’s a necessity for most  businesses to have a business checkbook where the owner deposits her income and pays business expenses. But family child care is a unique business in that most expenses are both business and personal (toilet paper, cleaning supplies, furniture, appliances, and so on).

When you write a check for such items do you write it out of a personal checkbook or business checkbook? Do you need a business checkbook? It’s up to you.

You are not required to have a business checking account.

Child care providers are divided on whether or not they find a business checkbook useful. Some believe it is a sign of professionalism. Some use a business account to deposit all their income. Others use this account for expenses that are exclusively business, such as payroll for employees, equipment, toys, and so on.

You can run your business income and expenses through one personal account. Many child care providers have done so for years without problems.

You can write checks for business expenses out of another personal or business account. It doesn’t matter. If you get audited by the IRS, they will look at both your business and personal checking accounts. Before you open a business checking account, you should find out if the fees are higher than a personal account. Sometimes having two personal accounts will be cheaper than one of each. If you have a business name and parents are writing checks to your business name, you will probably need a separate business account.

Check with your bank. Some child care providers open a separate business savings account. One child care provider deposits her fundraising income into this account. Others put aside money for special purchases, such as an outdoor climber, or save it for a rainy day. I have also talked with child care providers who have a separate business credit card. If you always purchase items for your business with a check, credit card, or debit card, you will have a paper record that will make claiming business deductions on your tax return easier. You will also have an easier time defending your expenses if you are audited. If you pay by check, be sure to also keep a receipt to show what you bought. If you don't have the receipt, make a note in the memo line of the check about what you bought ("toys," "children's supplies," etc.). When you must use cash (garage sales, Craigslist, etc.), write down your purchase on a piece of paper. Then take a picture of your purchase.

Note: If you incorporate your business or form a partnership, you must keep a separate business checking account. You cannot co-mingle business and personal funds. That means you must write a check out of your personal account for all expenses that are both business and personal. If you fail to do so, you will likely lose the protection that incorporation normally brings.

Tom Copeland - www.tomcopelandblog.com

Image credit: https://www.thebalance.com/duplicate-checks-the-basics-315295

For more information, see my Family Child Care Record Keeping Guide.