Blending Personal and Business: Here’s What You Need to Know


Bench Accounting


Reviewed by


June 7, 2023

This article is Tax Professional approved


When assessing your filing obligations as a taxpayer, it is crucial to determine whether your activity falls under the category of a business or a hobby. This comprehensive guide will help you determine if your activity qualifies as a business and what your requirements are based on the type of corporate entity you have. We’ll also let you know how Bench can assist you in managing your blended personal and business accounts. Stay informed and ensure compliance with our expert guidance.

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Is it just a hobby or a serious business? Assessing your activity for tax qualification

In general, taxpayers are allowed to deduct ordinary and necessary expenses for conducting a trade or business. An ordinary expense is one that is common and accepted in your trade or business, while a necessary expense is appropriate for the business. An activity qualifies as a business if it is carried out with the reasonable expectation of earning a profit.

The IRS presumes an activity is carried out for profit if it generates a revenue for at least three of the last five tax years. However, the determination depends on the facts and circumstances of each case.

To assess whether your activity qualifies as a business, consider the following factors:

Profit intention: Your time and effort invested in the activity should indicate an intention to make a profit. A genuine profit motive is a key indicator of a business.

Dependency: If you rely on income from the activity to cover your living expenses or financial obligations, it is more likely to be considered a business.

Losses: Evaluate whether losses are beyond your control or a result of the start-up phase. Demonstrating changes to improve profitability showcases a business-like approach.

Knowledge and expertise: Possessing or having access to the necessary knowledge and expertise to run the activity successfully suggests a business endeavor.

Past profits: If you have previously made profits in similar activities, it supports the case that your current activity is a business.

Profitability: While occasional losses are acceptable, the activity should generally make a profit in some years, or you should have a reasonable expectation of future profit.

Your hobby is a business, now what?

As your hobby transitions into a full-fledged business venture, the structure of your business will dictate how you handle personal and business finances. Whatever path you take, Bench has made it easy to connect your personal bank accounts and credit cards used for business transactions. The information flows into Bench securely and in real time when you connect your eligible accounts, allowing us to handle recording transactions. We’ll add the data to correct ledgers and with just a few clicks from you, we’ll ensure your books are in order. And better yet, you’ll gain a more complete picture of your business faster, with relevant transactions from all accounts automatically flowing into Bench.

Sole proprietorship:

In the world of sole proprietorships, where there’s no legal distinction between the owner and the business, there is no legal requirement to maintain separate accounts, but it’s still wise to keep personal and business transactions separate. Establishing a dedicated business bank account allows you to track income and expenses distinctly, making it easier to see what money is coming into your business and what’s going out. Remember to maintain separate records for business and personal transactions, invoices, and receipts.


For partnerships, it’s important to have a clear separation between personal and business finances. Create a separate business bank account to handle all partnership transactions. To ensure smooth operations, partners should define their roles, responsibilities, and capital contributions in a written partnership agreement. Additionally, each partner should maintain separate records for personal and partnership transactions.

Limited Liability Company (LLC):

LLCs benefit from having a dedicated business bank account to manage income and expenses. LLCs are separate legal entities that offer liability protection to you as an individual. So if your business ever runs into challenges, your personal assets are protected. In order to keep enjoying the benefits of liability protection, it is important to separate your business and personal finances. Not doing so can make your personal finances vulnerable.

Corporation (C-Corporation or S-Corporation):

When it comes to corporations, maintaining a clear distinction between personal and corporate finances is essential. Opening a corporate bank account and conducting all business transactions through that account ensures separation. Keep detailed financial records, including income, expenses, and shareholder equity, specific to the corporation. Adhering to corporate formalities, such as holding regular board meetings and documenting corporate resolutions, adds an extra layer of compliance. Similar to LLCs, corporations are separate legal entities that offer liability protection. So if your business ever runs into challenges, your personal assets are protected. In order to keep enjoying the benefits of liability protection, it is important to separate your business and personal finances. Not doing so can make your personal finances vulnerable

The Small Business Administration (SBA) provides a wealth of resources and information tailored to assist small businesses. By accessing their website, entrepreneurs can access valuable guidance covering diverse aspects of business operations, including financial management. Take advantage of the website’s search function to find relevant articles or guides pertaining to your specific entity type.

How Bench can help

At Bench, we understand the complexities of starting and running a business and that blending personal and business finances is sometimes inevitable even if it’s not in line with your business structure. Our seamless solution caters to your unique needs, providing the tools to still maintain proper and compliant books. Whether you operate as a sole proprietorship, partnership, LLC, or corporation, Bench has you covered.

How to set up separate bank account for your business

If you’re a new business owner who’s ready to open a business bank account, here are some things to consider:

Research business banking options

When it comes to business banking, your options generally fall into two categories: traditional banking and digital banking (also known as neo-banking).

What are the differences between the two? Most notably, digital banking platforms operate wholly online, whereas traditional banks have physical branch locations where customer service is provided—think big banks like Wells Fargo and smaller, neighborhood credit unions.

A lot of first-time small business owners simply open a business account with the same institution where they have a personal account, and this is usually a traditional bank. This can be expensive because traditional banking usually comes with account fees.

When you’re deciding between traditional and digital banks, consider:

  • How you want to bank Would you like to complete all of your banking online? Or, are you comfortable walking into a branch to complete some tasks? With digital banking, you can open accounts, issue cards, send payments and talk to customer support completely online. Traditional banks often have online banking features, but some services are still best accessed, in person, at a branch.
  • Minimum balance requirements Traditional bank accounts usually come with minimum balance requirements, and you’ll typically be charged a monthly account fee if these requirements are not met. Digital banking platforms offer lower minimum balance requirements or, often, none at all. If you bank with Relay, for example, you can open multiple checking and savings accounts without ever having to worry about maintaining minimum balances or paying monthly account fees.
  • Fees In addition to monthly account fees tied to minimum balances, traditional banks often charge overdraft fees, failed transaction fees and other hidden fees that can catch a business owner by surprise. Digital banking platforms, like Relay, charge fewer fees and are generally more transparent in terms of pricing.
  • Payment types Make sure your new business bank account supports the incoming and outgoing payments you need to operate your business—be it ACH, wires or check payments. While digital banking platforms tend to offer lower or no fees for outgoing payments, they’re also less likely to offer physical checkbooks to their customers.
  • Debit, credit and charge cards. Digital banking platforms typically offer Visa® or Mastercard® debit cards and charge cards (charge cards have more rigid payback timelines than credit cards). These cards can be used anywhere credit cards are used. However, it’s common for business owners to operate wholly out of a digital banking platform but keep a more traditional credit card for the times more flexible payback periods are needed. Make sure your new account offers the type of card you need or makes it easy to pay off a third-party credit card.
  • Data quality Your business bank can either make monthly bookkeeping simple or turn it into an absolute headache. It all depends on the quality of data provided for each transaction. Traditional banks often provide unclear vendor names and transaction details, but digital banking platforms have prioritized user experience within their apps and they’ve likely put in some work to make transaction data readable and easy to understand. Relay cleans and standardizes vendor names for all debit card purchases, and each purchase is auto-categorized to speed up bookkeeping. Relay also lets users add memos to outgoing payments for bespoke categorization.
  • Collaboration Do you need an accountant, bookkeeper or team member to securely access your bank account to help with bookkeeping or day-to-day tasks like sending payments? Traditional banks can make it difficult to add authorized users to an account (this could mean paperwork, phone calls, in-person visits, etc.). But with Relay, you can safely add advisors or employees to your account in just a few clicks. You’ll have full control over what each invited user can do or see, and you can revoke access at any time.

Gather Necessary Information and Documentation

Opening a new bank account for your business does require you to provide some personal and business details. You may not need all of the following, but here’s what we recommend you have ready:


  • Government-issued photo identification (like a driver’s license or passport)
  • Social Security Number (SSN) or a Passport Number if you’re not a US citizen
  • Your address (you may need to show proof of address—think utility bills, personal bank statements)


  • Your Employer Identification Number (EIN) and, in some cases, you’ll be asked to provide an EIN Verification Letter
  • Business phone number and address (proof of address may also be required for business addresses)
  • A “Doing Business As” document if you operate and accept payments under more than one business name

Additionally, depending on your business entity, you may be asked to provide the following:

  • Articles of Incorporation
  • Articles of Organization
  • Company Bylaws
  • Operating Agreement

Choose the right account types and structure

Make sure the bank you choose can support the way you want to collect and organize your money. If you need multiple checking accounts to compartmentalize income and expenses (like the Profit First method) then make sure your bank lets you create more than one checking account. Additionally, if you do want to open a business savings account, then make sure your bank offers business savings accounts and an interest rate that will be meaningful to you. You should also look out for minimum balances and opening deposit requirements specific to savings accounts.

Update your financial processes

Once you have your new business bank account, you’ll want to make it the center of your financial operations.

We recommend that you start by moving your operating capital out of your personal account and into your new business account.

Incoming payments

Next, make sure all incoming payments are redirected to your new account. If you collect money through payment processing tools—like Stripe or Shopify—then you’ll need to make sure your new bank account is set up as the deposit account for each tool. You’ll need to keep your new account and routing number handy to make these updates in each tool.

If you collect payments from customers—like ACH transfers, wires or checks—then the businesses or individuals that pay you will need to update the banking details they have on file. Send them your new account and routing number by email and make sure they’ve made updates on their end before they send your next payment.

Outgoing payments

You’ll want to make sure all outgoing payments are coming out of your new business account and not your personal bank account.

A good place to start by updating all card transactions—like monthly software subscriptions. Make sure each vendor is updated with your new business card details. You can create a checklist of the vendors that you need to update by looking at your monthly bank statements and picking out the business transactions that need to be moved over to your new account.

If you have any other types of withdrawals—like pre-authorized ACH transfers—we recommend moving those to your new account once all of your card transactions are moved over.

Maintain accurate financial records

Once your new bank account is up and running, you’ll need to implement processes for keeping accurate financial records of business transactions—including income, expenses, receipts and invoices.

If your records are organized, you’ll save yourself a lot of time (and peace of mind) when it comes to bookkeeping, tax preparation, and financial analysis.

For accurate record keeping, you’ll want to connect your banking platform with your accounting software from day one. This will speed up bookkeeping and reconciliations for your accountant or bookkeeper, and help ensure that your books are clean.

Look for a banking platform that offers role-based access so you can safely and securely give your financial advisor access to banking. This will ensure that your financial advisor, or internal finance team, can make payments, forecast expenses, and prepare for tax season with ease.

Ready to choose the right business bank for your business?

Bench recommends Relay as a no-fee, online business banking option. Relay is banking truly built for small businesses. Relay helps entrepreneurs get crystal clear on their cash flow. They know that money is your means to make it, and it’s why they offer:

  • Business banking without account fees or minimum balances that tie up cash flow
  • 20 accounts (including two savings accounts with 1-3% APY) to earmark cash for operations, payroll, taxes and more
  • 50 Visa® debit cards to meticulously organize spending by team or project
  • Ultra-detailed transaction data that simplifies and speeds up expense tracking
  • All the payment types you could need—including ACH transfers, wires and checks
  • Automations—like maximum-balance transfer rules—that make money move for you so can focus on running your business

Create a Relay account for free. Relay is offering Bench customers a $50 sign-on bonus. All you have to do is create a Relay account and deposit at least $1 USD into your account.

Relay is a financial technology company, not an FDIC-insured bank. Banking services and FDIC insurance provided through Evolve Bank & Trust and Thread Bank; Members FDIC. The Relay Visa® Debit Card is issued by Thread Bank pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa® debit cards are accepted.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.
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