If you run a business, it is a good idea to establish a business chequing account. Having a business chequing account in place provides your firm with a number of important benefits, from better record keeping and easier tax planning to a simpler way to track income and expenses throughout the year.
Better Record Keeping
No matter what the nature of your business, proper record keeping is important. Having a separate chequing account just for your business makes it easier to track your receipts, expenses and other financial aspects of your business. Without a business chequing account, you could be left guessing which checks were for business-related expenses and which ones were personal.
Also, if you are registered for GST/HST or PST, you cannot pay those out of a personal account, and many governments are no longer accepting cheques or payments at your bank.
Commingling your business and personal accounts is dangerous from a tax standpoint. If you mix your business and personal expenses and income, you could erroneously report something as a business expense when it was in fact a personal expense. That simple oversight could be enough to trigger a further inquiry by CRA, or even an audit. Keeping a separate business chequing account means that you can keep your personal expenses walled off from your business.
Having a separate chequing account for your business also makes it a lot easier to keep track of the checks you write to CRA for your quarterly estimated tax payments. As a business owner, you are generally required to make estimated payments to CRA on a quarterly basis, and writing those checks out of a separate account makes record keeping and accurate tax reporting a lot easier.
When you run a business, you need to account for every penny that business brings in and report accurate numbers to CRA. Having a separate business chequing account makes it easier to track every dollar you make so that you do not accidentally under-report your income and invite an audit. A business chequing account also makes it easier for your business to accept checks, since customers can simply make their checks payable to the business.
Keeping a separate bank account strictly for your business makes it easier to keep track of which expenses belong to the business and which ones belong to you personally. This is a very important consideration, since you can deduct business expenses from your taxes but not personal expenses. One smart strategy is to keep a separate credit card just for your business, then use your business chequing account to pay those bills. At the end of the year, you can request an itemized breakdown of your spending in a wide range of categories, and you can use that information when you prepare your tax return.
For all of these reasons, you should consider opening a separate chequing account as soon as you start your business. The sooner you establish a separate banking identity for your business, the sooner you can start enjoying the many benefits that come with separating your personal and business finances.
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