Whether you’re freelancing full time or dabbling with side gigs alongside your day job, it’s time to take your freelancing seriously and set up a freelancer bank account.
More than one-third of the U.S. workforce is now freelancing in some form, according to the 2019 “Freelancing in America” report. That means two things: vast opportunity, and intense competition. Skills aside, you will need to find ways to run your business efficiently in order to present yourself professionally. Start by separating your personal and business finances.
Do I Need a Business Bank Account If I Am Self-Employed?
A business bank account is certainly a best practice and, if you plan on growing your business, it could be a simple necessity. Skipping the step of setting up a freelancer bank account is one of the most common financial pitfalls freelancers make when starting out.
Benefits of a Business Checking Account
A separate checking account for your business will help set you on the path to success. Can you use your personal bank account for freelancing? Sure. Should you? Probably not. The advantages of having a business bank account are numerous.
- Establish Credibility – Gaining a prospect’s trust is crucial to signing them as a client. The more you can distance yourself from the pajama freelancer stereotype, the better. Send and receive payments through your business bank account to show that you’re no slouch.
- Protect Your Personal Checking – Not to scare you, but cybercrime is real, and the risks are ever-present for businesses. Fortunately, banks have many measures in place to identify and stop scammers. In the unlikely and unfortunate event that your business becomes a victim of bank fraud or identity theft, isolating the incident will keep it from affecting your personal checking. Vice versa, your business checking will be unaffected if your personal checking is targeted.
- Manage Your Cash Flow – One of the biggest fears for a freelancer is running out of work—and, in turn, money. With a separate bank account, you can easily monitor your monthly income and be reminded to nudge clients who are slow to pay.
- Plan for Taxes – Business owners, including sole proprietors, are generally required to pay quarterly estimated taxes. For those who are even moderately successful, estimated payments can amount to fairly large sums that you do not want coming out of your personal checking account. Additionally, paying yourself from a business account allows you to withhold self-employment taxes so that you’re not hit with an unpleasant surprise when filling your annual income tax return as a freelancer.
- Track Expenses – Your business expenses are key to lowering your taxable income. When you’re commingling personal and business expenses in a personal checking account, it quickly becomes difficult to divide the two. Instead, consolidate your business expenses in a business checking account to capture opportunities to reduce your tax burden. Tracking expenses may help you better take advantage of the many tax deductions for freelancers.
- Integrate Other Tools – Business banking is becoming increasingly digital. With the right business account, you can utilize helpful software and services—like online payments and built-in invoicing—that make it easy to run your business like a pro.
- Lay the Foundation to Scale – You might not see the need for a business account as a first-time or part-time freelancer, but what about your long-term goals? Do you plan to hire employees, apply for a business line of credit or rent an office? Establish a history for your business now and gain a leg up on your future.
Beware of Small Business Banking Fees
For all of the good a business account can do, there is one common drawback that sometimes gives business accounts a bad name. Business checking accounts, particularly those at large banking institutions, are notorious for fees. The most common fee is a “monthly maintenance” or “monthly service” fee. Some banks will waive this fee, but only if you maintain a minimum monthly balance. Oftentimes, the monthly balance requirement isn’t comfortable for a freelancer.
Other fees to look out for in a business checking account include transaction fees, cash handling fees and any fees associated with add-on services. A 2020 study by WalletHub found that business checking accounts are 70% more expensive than branch-based personal checking accounts and 47% more expensive than online-only personal checking accounts.
The Ideal Business Bank Account for Freelancers
Many freelancers are well versed in how to shop around for products and services, compare features, avoid unnecessary costs and make a decision with confidence. The same practice applies to opening your first business bank account. We recommend choosing an account that offers:
- Easy Setup – Part of the joy in freelancing is hitting the ground running. You should be able to start your business account in a day. If you can apply online, even better.
- No Fees – There’s no reason you should have to pay to own a business checking account, receive money or transfer funds.
- Online and Mobile Banking – Freelancers are typically on the go, and when they’re at home, they’re usually working. It is now completely possible to utilize a business bank account without ever stepping foot in a bank.
- Invoicing – Sending invoices directly from your bank account is a game-changer that saves time, avoids software costs and shows professionalism.
- Integrations – Third-party integrations, such as PayPal, Square, Stripe and QuickBooks, make your business operations more robust and reliable so that you can spend less time on bookkeeping and more time doing what you love.
Tap into all of the above with Azlo, completely digital business banking to power your passion forward. Open your freelancer bank account today.
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