A Photographer's Story about A Business Checking Account

Hi June,

Just wanted to make a comment about your advice about separate checking accounts for a small business. I think you are right on the money to make this suggestion. As someone who has been self employed for 14 yrs I had always heard and been given the advice that you should separate your business and personal accounts.

I have undergone an audit. The advice to keep separate accounts because it will somehow make an audit easier because the IRS auditor will look at only your business account and ignore your personal account is totally wrong.

So like many I took the advice and had the separate accounts and did all the right accounting practices for my business accounts and deposited money in my personal account that was for personal items such as gift money from various family members to my family and reimbursements from parents of a hockey team I coach.

For the years I was audited this personal amount totaled almost 15K. And since most of this personal money was deposited in cash I kept no real track of it. It was "PERSONAL" and not business.

Well as the story goes, the government seemed more interested in every family member’s "PERSONAL" account after they turned up only a few small accounting errors. To cut a long story short I was hit with penalties and huge interest payments on my personal money which was crazy but also made me understand the idiotic advice that a small indie business should have a separate account and separate their personal money from their business money and an audit will be a breeze and that in the end you will be glad you followed so called proper accounting practices.

What I learned is that when you are an indie there is no distinction made between business money and personal in terms of an audit and having multiple accounts just muddied the waters for me. Had I just had one account, photocopied all deposits regardless of the source and paid all my personal and business expenses out of one account my life would have been simpler and by not following "proper business practices" I would have saved myself a ton of money and headaches.

Having separate accounts for an indie is bad advice and even worse is the experts telling an indie they need separate credit cards for personal and business. My advice from a guy who has been through an audit is to ignore the experts and follow common sense which tells you keep track of all money in and out in the absolute easiest way and don't get bogged down with accounting but focus that time on developing your business.

All the best,

Cliff
Photographer


Thank you, Cliff.

Your experience perfectly makes my point about recordkeeping. There are pros and cons to different kinds of recordkeeping and different kinds of business structures. Each indie business is unique -- unlike many W-2 jobs -- and so each must use the system and structure that works best for his or her situation -- to be decided with the help of a tax pro who understands the pitfalls and the advantages. For instance, indies often overlook the possibility that liability protection may be taken care of by insurance.

There are no cookie-cutter answers for indies!

June Walker