Sole Proprietor Business Bank Account: Do You Need One?

IRS Publication 583 says one of the first things to do when you start a business is open a business checking account, keep it separate from your personal checking account, and use it for business purposes only. The IRS recordkeeping page adds that you may choose any recordkeeping system that clearly shows your income and expenses, and that, except in a few cases, the law does not require any special kind of records.

A sole proprietor, per the IRS, is someone who owns an unincorporated business by themselves, so there is no separate legal entity that must hold its own account. Other rules can still apply to your situation, such as a state or local license condition, a lender's terms, or a payment platform's terms. Check those before you decide.

You report a sole proprietorship's income and expenses on your own return, and you must keep records as long as needed to support what you report. When business and personal money share one account, each deposit and payment has to be sorted by hand before you can show what was income and what was a business expense. A dedicated account makes that sorting easier. Whether it changes your taxes is a question for a tax professional, and nothing here is a promise of a tax result.

None of the following is a legal requirement. They are items banks commonly ask for, so call or check your bank's website before you go.

• A government-issued photo ID.
• Your Social Security number or your EIN. Which one the bank accepts is up to the bank.
• Your business name, address and a description of what the business does.
• If you use a trade name, proof of the DBA or assumed name filing.
• Any state or local license your business needs, if the bank asks to see it.

SSN or EIN?

The IRS says you need an EIN if you have employees, must pay employment, excise, or alcohol, tobacco and firearms taxes, or withhold taxes on income, other than wages, paid to a non-resident alien. If you do not need an EIN for federal tax purposes, the IRS says you can still request one for banking or state tax purposes, and you can use it right away to open a bank account. Some sole proprietors apply for one so they can give a bank a number other than their SSN. See our EIN guide to apply, and EIN vs TIN vs FEIN for how the terms differ.

If you want the account to carry a business name instead of your own, banks commonly ask for proof that you registered it. Whether and where you must register a trade name depends on your state and sometimes your county, and the rules differ. Our DBA guide covers the states we have verified. Without a DBA filing, expect the account to be opened in your own legal name.

An LLC generally keeps business debts separate from your personal assets, and it does not protect you from claims over your own work or mistakes. Keeping the LLC's money in its own account is one of the ways owners show the business is separate from them. See LLC vs sole proprietorship for the full comparison, and whether you should form an LLC. If you do form one, our banking guide compares accounts and explains how we score them.