Business or Personal Checking Account?

Question

What kind of checking account do I need for a rental property? Will it need to be a business checking account even if I don’t use a llc for the property or would I need a DBA?

Account Closed · Answer

I was just audited by the IRS. No CPA or enrolled agent involved. Lots of properties and lots of accounts. I do Subject To and Lease Options which are a more complex set of transactions. The auditor wanted copies of statements from every account and every property for two years. Which I had neatly stacked in an understandable order by account, by date and included copies of the major checks and wires. For various reasons, I have personal accounts at a couple of Credit Unions and business accounts at a couple of Regional Banks. Because it was all segregated, "fix & flips" through one account, "lease options" through another and so on, it was easy to explain what the accounts attached to. He grabbed two accounts at random and we went through them covering a few major deposits and withdrawals and he said, "since you are so well organized, we don't need to go any further on the bank accounts" and we went on to a different subject. If it had all been in the same account, I think we would have spent a lot longer sorting out the transactions to his satisfaction. Maybe even a second session. You don’t want to confuse an auditor. Make it simple to review. I got the substantial refund I was arguing for. By the way, I don't use the 5 major banks, too painful and too expensive. I use credit unions and regional banks. It looks like you are in Mesa. Desert Financial Credit Union and 1st Bank are good choices. Both are easy to work with and much less spendy.

Doug Smith · Answer

Bank accounts are easy to get...go get a segregated account. It can even be a personal account if you don't have an entity or a "fictitious name" filing, but it really keeps it easier to segregate the money and not co-mingle. It will make accounting much, much easier.

Noah Corwick · Answer

Hi David, It's likely strategic long term to set up another account. It might come in handy from a bookkeeping standpoint and will keep things cleaner and more organized. Plus you'll thank yourself in the future if you scale your portfolio.

Basit Siddiqi · Answer

Business bank accounts are used for those with an entity(LLC, Corp, etc)if the property is owned by you personally, I would open up another personal account.

Clay White · Answer

Hey David! You wouldn't be able to set up a business bank account without a business entity/EIN. However, I would definitely suggest creating a separate personal checking for your rental property/future properties. It makes it much easier to sort expenses and show profit/loss.

Caroline Gerardo · Answer

Couple thingsIf you are making lots of deposits and cash into an account your bank might change you to a business checking with fees... check with your bank You want to deposit every penny into one account and then segregate the money by ACH if you are thinking of doing a bank statement loan.IF you have entities the opposite is true every dime has to be padded in boxes away from other accounts and entities.Answer is- depends on what you personally are planning. No easy answer.

Alecia Loveless · Answer

@David Corrales I have my properties each under their own accounts in my personal name. I know that’s tedious the more properties you get but it makes it really simple to track the income and expenses for each separate building. My bank has a great online app and I’ve just got the accounts named so I know which is which and if I have rent checks to deposit I open my phone and call up the account and instantly have the account number for the deposit slip. Super simple. Some people like one account for all their properties but that’s how I do it.

Brian G. · Answer

@David Corrales just open a separate account in your personal name and run all business income and expenses through that for good record keeping. Keep good record of all expenses (ie digital copies). Your future self will thank you come tax filing time! I personally use i-Cloud folders organized by property-> year-> month. Best wishes on your new venture!

Andrew McGuire · Answer

@David Corrales I believe business, easier to track and for liability purposes. If shared with personal account, I'm not attorney but if you get sued they can go after everything in shared accounts.

Bob Willis · Answer

Hey David - if the property is in your personal name you can just use your personal account. If you start growing and want to setup a separate account handle that part of your life that is fine. But to start you can just use your personal account. If the property is held by an IRA you own or some other entity you may want to talk to an accountant. I'd keep it simple as you are starting out.