Many freelancers start their businesses “unofficially,” picking up a few gigs on the side and handling any earnings through their personal business accounts.

This may be fine in the beginning, but if you make a majority of your income on 1099s, it may be time to get official and open a second account. (And if you’re incorporated, you must start a separate account.)

What are the advantages of having a second account -- and what should you do when you have one? Here are some tips:

1. Keep taxes simple

Separating personal and business banking can make reporting income and filing for deductions much simpler in tax season. No need to comb through monthly statements -- most business accounts send you an end-of-the-year expense report with totals by category (entertainment, car, etc.).

Use your business account for any purchase related to your business, even if you will only deduct a portion of this expense on your taxes. EZ-Pass, transit, car repair, gas, client lunches, office supplies, and all expenses should go on your business credit card or debit card.

You can also link your accounting software (like Mint.com) to your business account, and make your expenses even easier.

2. Establish good credit

Even if you don’t “need” a credit card for your business, opening a small line of credit that you pay each month establishes good credit for your business -- which could be invaluable for fueling your future growth. Who knows when you may want to expand, renovate your office, or start a new venture.

Many small business accounts have low fees or a minimum number of debit/credit card purchases per month. Hunt around for the best option for your freelance business, which can change if you sell physical products, have capital, or are interested in getting a loan. (We’ll be publishing a post about the best banks for freelancers later this week.)

3. Start a good relationship with your banker

Don’t just open an account online and go on your way; go into the branch, talk over all the details with the Business Manager, and make sure you understand your options. Meanwhile, you’re also introducing yourself to this person, who may be instrumental in:

  • Networking for your business. They know all the small business owners in your area.
  • Approving future loans. Establishing a relationship with them years in advance can make that process much simpler (and possibly more successful).
  • Helping you in times of trouble. Often these managers have the power to wave first-time late fees or other penalties. A good relationship and good credit can help you navigate tough times.

4. Establish credibility with clients

A separate banking account will let you open checks with your business name and file invoices with your business name. (Note: You can also do this if you set up a DBA (Doing Business As) on your personal account.) This is both personally satisfying and establishes a sense that you’re serious about your freelance business.

This can also establish credibility with customers by making it easy for them to make payments to you, especially if you sell physical products (in person or on your website) or want to provide credit card payment options for your clients’ convenience. To learn more about how to accept credit cards, visit the Small Business Administration’s guide.

Let us know if you have any questions about small business banking in the comments below, and we’ll do our best to answer!