Most drivers don’t realize it, but as a 1099 employee, you are now a business owner and there is a lot of added responsibility that goes along with that. This is the second article of a six part series on setting up your rideshare business.
Last week, we explained the difference between a sole proprietorship and LLC and today we talk about why it’s important to set up a business checking account.
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Figuring out where to deposit checks is generally a good problem for business owners to have. That means your business is making money and maybe even turning a profit. The nice thing about being a rideshare driver is that you’ll start getting checks (virtual ones at least) and making money after your first week of driving (believe it or not, it’s not like that with most new businesses).
But now you’re going to need to find a place to stash all that money and as you’ll find out, mixing personal assets with business assets is a big no-no and could cause a lot of un-needed complications down the road:
- A separate business checking account is especially handy come tax time when you need to create reports for your accountant or to check your income and expenses.
- If you’re ever contacted by the IRS, you can prove your business is legit and it will prevent them from poking around your personal transactions while examining your business.
- You can link your bookkeeping software to your business checking account for auto-import and slick reporting features.
If you operate as a sole proprietorship, you can actually open up a second personal checking account and treat it as your ‘business checking account’ instead of opening up an actual business checking account.
I prefer this method for sole proprietors because business checking accounts often come with higher fees yet don’t offer any additional benefits compared to a personal checking account (some banks won’t allow you to do this but most will be ok with it).
So in essence, you could essentially open two personal checking accounts but treat one as your ‘personal checking account’ and treat the other as you ‘business checking account’. All you would need to do is fill out an application for another checking account to get started.
If you would like to opt for a true business checking account as a sole proprietor, banks will require a federal EIN which is essentially like a social security number but for your business and some will also require a DBA. DBA stands for “doing business as” and it’s a formal way to legally operate a business under a different name than your own.
Sole proprietors don’t need DBA’s but if you opt for a business checking account, you will likely need to get one.
LLC & S-Corporation
If you’ve incorporated as an LLC or even an S-Corporation you are legally required to separate your personal and business checking accounts. In this case, you will want to open a business checking account and provide your TIN, legal articles of organization and operating agreement (if you have one) – basically just a formal document about your company and its members.
For rideshare drivers, you probably won’t be writing a ton of checks so all you’ll really need access to is a basic business checking account that allows for deposits and withdrawals. I like doing most of my banking with online banks but there aren’t a whole lot of online banks that offer true business checking.
I recommend you look for a business checking account with whatever bank you currently have your personal checking with. The fees and account minimums can vary widely though from Chase to Bank of America for example, so make sure you compare terms until you find one that’s suitable. Some local credit unions may be a good option too for a true business checking account.
Related article: Essential gear every rideshare driver should have
What Can You Do With A Business Checking Account?
After you’ve opened your business checking account there are a few more steps you’ll want to take:
- You’ll want to link your Uber, Lyft or Sidecar direct deposit to your checking account.
- If you use a Square reader or a similar tool to accept tips, you’ll also want to link that to your new business checking account.
- If you’d like to automate your business even further you can open a business credit card (which we’ll discuss in Day 3) or just use your account’s debit card.
- Link your account to a money management software like Quickbooks (which we’ll discuss in Day 4) for faster reporting and help come tax time.
- If you do any type of Paypal transactions for your rideshare business (pre-arranged rides, ancillary services, etc) then you would also want to link your Paypal account to your business checking account.
Setting up a business checking account can be a bit of a hassle but it will save you a lot of headache come tax time and especially if you are ever audited. Remember, now that you’re a business owner, it’s important to separate your professional life from your personal life. You’re still free to transfer money in/out of your business checking to/from your personal checking account but it’s important that you either keep good records or use software to track all of your transfers.
Did you like this article? If you’re ready to continue your education and want to start maximizing your profits today, join hundreds of other drivers who have signed up for our first of its kind video training series on Maximum Ridesharing Profits!
In the course, you’ll learn all about getting started with Uber and Lyft, how to maintain a 5 star rating and lots of strategies for finding more surge rides and maximizing your profits as a rideshare driver!
-Harry @ RSG
PS – Our next article is going to be a fun one since it’s all about finding the right credit card for your business. I’m a big fan of miles and points so any time I can rack up free travel, I’m all for it!