Rental Property Investor · Katy, TX · Member since 2015 · 49 posts · 10 votes
Hello my fellow investors,
I'd like to ask your opinion regarding bank accounts. At which stage do you guys think I should open a business bank account?
My plan is to flip houses and wholesale deals. I am in the earlier stages of investing, but I've already been spending money with direct mail, LLC fees, website, training...all of these I used my personal credit card for payment.
@Tatiana C. - As soon as you start having business expenses you should have a business bank account. Every time you need to pay something for the business transfer money from your personal account into the business account and then write the check from the business account. This makes IRS audits and end of year tax filings so much easier to justify what was a business expense and exactly how much owner equity you have contributed. Anything else could just become a tax nightmare if you can't prove every single expense coming from your personal account, the IRS will assume it was a personal expense.
@Tatiana C. - As soon as you start having business expenses you should have a business bank account. Every time you need to pay something for the business transfer money from your personal account into the business account and then write the check from the business account. This makes IRS audits and end of year tax filings so much easier to justify what was a business expense and exactly how much owner equity you have contributed. Anything else could just become a tax nightmare if you can't prove every single expense coming from your personal account, the IRS will assume it was a personal expense.
don't spend a lot of money on set ups if you haven't got your first deal done yet
do a deal first then look to see if this is something you really want to do then you should look at business stuff
you can turn one or few houses without a long dreaded legal journey and spending a lot of money you could have used to set up and rehab a couple places
make sure you do a long tax form and a good cpa- write off all your expenses- you can be a dba- then a llc
If you own your rentals or do your flips in your personal name than, that's basically the same things. If, however, you do your business under some other legal entity, then I'd strongly suggest setting up a business account. Does it matter much? Probably not...business accounts are a bit more "expensive" because of transaction costs, but most small time investors would never hit those limits on monthly transactions. Generally speaking though IRS auditors view things very black and white. A personal account is personal and a business account is business. I've never been audited, but I'm sure someone on BP has been or a CPA on here has had a client go through it and could say how the IRS handled those situations...I'd rather just play it safer than sorry. The IRS is a scary beast and I'd rather not poke him while he's sleeping.
I don't think it matters one way or the other, depending on your personality type.
If you're the type who uses a personal finance tool like Quicken or Mint or whatever, you enter every single transaction, every single time, categorize everything correctly all the time and are really great at saving receipts, then there's no need to get a separate account.
If you fall short of that standard in any way, then consider getting a separate personal bank account at the very least. You don't have to formally incorporate. You can get a trade name with your state and be Joe Smith dba Smith Properties for really cheap. You can then get a bank account for that business name if you want.
Also, if you're going to need to use a credit card, try to take one credit card and use it only for business.
Unless you are a super star bookkeeper, then keeping everything business related to one checking account and one credit card makes it very easy for either you or your CPA to do your taxes at the end of the year.
Hello and welcome to BP! From what I have read, and do not consider myself an expert. You should open business-type checking accounts and credit card accounts. I think you can deduct business expenses you paid for with a personal account. I am pretty sure you need to have an EIN number to open up business accounts. You should had got the accounts opened 2 to 3 weeks ahead of their need before you need one/some. I am 60 yrs old and have had a couple of my own companies and I have never been audited. Your best ber is to blow off any contacts with the IRS and do not worry about what you are doing. I would also recommend that you form of corporation or a LLC. You should consider talking to a lawyer, and/or a CPA, and/or a tax accountant that have experience with what you are doing to offer you some advice on the best way to go.
@Tatiana C.spend all your time marketing for reasonable sellers. Dont worry about llc , bank accounts, etc. Spend all your time looking for property owners who want to sell. Do a few deals. then once you can easily do one deal a month , worry about checking accounts, llcs, etc. Learn as much as possible about direct mail, bandit signs, door knocking then worry about the other stuff.
Do your first deal under your name and make some money, then use some of the profits to establish your business.
For the most part LLC's and business bank accounts are just an expense that you may not need for a while. Get going, take action, get some deals under your belt and then open your business. If you don't like this business at least you did not have to spend thousands of dollars in lawyers and accountants, quickbooks at the beginning should be sufficient. Invest in Marketing, and let the deals flow!!!!!!
Gordon, Thank you so much for your advice. I have started my marketing campaign, direct mail, but no calls yet :( I know I must be patient...deals will come. You are very right and it helps me very much to hear someone experienced sharing their thoughts. Good to know when you are in the right path. :)
Thank you so much for your advice. I have already opened my LLC, but you are right, focusing on marketing is the right path and it just helps me very much to hear that experience investors like you are doing marketing with patience and getting results. It gives me hope.
Many thanks and all the best in your investments!
I live in Katy too, would you consider adding me to your distribution list for wholesale deals?
I am a realtor and have an accounting business. You can use your personal account as long as you code them correctly. You can do whatever you are more comfortable with. One way to do this is to use QuickBooks and assign a class to any business expenses. That will allow you to break out a Profit and Loss Statement. Let me know if you want help with that.
I personally like to have separation. I have a business checking and business credit card. And after a couple years I got a business line of credit. Establishing history and track record with you financial institution is important. While you don't have to rush out and get this done right away, I'll also suggest that it makes you think more like a business owner.
I can totally relate to that and I really appreciate your opinion. I feel the same way.
Can you share with me what bank you use or others you've heard are best for business accounts? I have a personal account with Chase and think it might be a good idea to open a business account with them to facilitate transfers between my accounts. Any thoughts you can offer on that?
Thank you so much! All the best in your investments!
@Tatiana C. That is exactly what I did....kept my business account with the same bank as my personal accounts. I move money around between accounts and lines of credit so it's really convenient. Also, when you need cashiers checks or wire transfers on little notice it's convenient to have a one stop shop.
You should definitely keep separate accounts. Whether they are personal accounts you only use for business expenses or actual business accounts does not matter so much as keeping the transactions separate. Especially come tax time, you'll be glad you did this. I know at Wells Fargo you can have a free business checking as long as you also have a savings. Just ask your banker how to avoid fees. I have been through several IRS audits with clients and my own.