Does a Sole Proprietorship Need a Separate Checking Account for QuickBooks?
Sole proprietors are their businesses. They are 100 percent liable for all business debts, lawsuits and receive all profits. Sole proprietors using QuickBooks to manage their business finances should maintain a separate profile in QuickBooks. The IRS affords businesses certain tax deductions that can be lost if the sole proprietor appears to be misappropriating business funds.
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Definition
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A sole proprietorship is a business owned and managed by one person. "The sole proprietorship can be organized very informally, is not subject to much federal or state regulation, and is relatively simple to manage and control," according to the Iowa Secretary of State website. The informal nature of the business structure can lead to casual business practices. Such practices can mean trouble if the business owner does not honor tax law and accounting obligations.
No Separation
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There is no legal separation between a sole proprietorship and its owner. However, to maintain accurate reporting, the sole proprietor should maintain separate business and personal profiles in QuickBooks. This helps the sole proprietor keep track of which business expenses can be written off. Attempts to write off personal expenses covered by business resources may result in penalty with with IRS.
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Creating a Profile
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Create a new profile for your personal checking account in QuickBooks by clicking "New Company" on the File menu. You can enter your personal address and contact details in the New Profile window. Your personal profile allows you to manage your household bills and expenses, personal credit cards and checking accounts in one place. Use the reports section to determine the net household income of your family. Reports summarize your account activity, making it easy to review when preparing your taxes.
Business vs. Hobby
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Your sole proprietorship is informal, but in the event of an audit you must be able to prove you run a viable business or it may be considered a hobby. The IRS will check to see if you have a separate checking account for a business. You could lose important tax deduction privileges if your business is considered to be a hobby.
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