At the moment I have separate savings accounts set up with a single bank. Some of the savings accounts are personal, while the others are what I would consider "business" savings accounts: property tax escrows for the rentals and security deposits. Separate, unique account numbers for all.
At some point in the not-so-distant future I am going to set up an LLC for the business, so I understand I will need separate accounts for the business. Does having the separate savings accounts as I mentioned above fit the bill? Or does it have to be at a separate bank with a separate login totally unrelated to my personal financial accounts?
Hi, "accounts" for accounting purposes are mentioned we aren't talking about bank accounts, we are talking about accounts in a ledger of accounts that separate categories in the accounting of funds.
A business account that physically has funds deposited to it, at a bank is accomplished with one account. You must separate business funds from personal funds, if you fail to do that you can have serious legal complications and tax problems. "Comingling funds" is when you allow business and private funds to be included together. Need to search that matter and understand that you can't use business funds for personal needs, that if you need money, it comes through your "drawing account" as you are paying yourself and that is most likely taxable income to you.
Accounts are broken down by a "chart of accounts" search that as well. The chart of accounts keeps your books in good form and allows you to account for money registered in each account.
State law may apply to certain accounts, such as earnest money, security deposits, or other funds that you may receive that is not earned money but funds held in trust arising from some contract agreement. Funds held in trust should be and may be required to be, in escrow accounts in an insured bank. This account must be separate and hold only funds held in trust, one account may hold several deposits, but you may not have other business or private money in those accounts. Laws may apply so you need to understand what how to manage these accounts.
You business accounts at the bank are more efficient and less costly by having one checking account as an operations account. All expenses may be paid out of one account. You can have a savings account, interest may or may not be available on business funds, depends of the type of account.
Your books, through the chart of accounts is where you keep track of funds. You either add or subtract amounts in these accounts to show how funds are used. This list of accounts or the total amounts are then added or subtracted to income and expenses, the difference is then balanced to your bank register showing that the fund is in balance.
There is absolutely no need to have separate bank accounts for different properties or for different types of accounts, that is simply a mess, while you may think it's simplified, the tax man may not, your banker won't and neither will your accountant.
Simple, basic accounting or bookkeeping is not difficult after it is set up. There are several accounting programs that make bookkeeping pretty simply and quick, like Quicken.
Accounting is the language of business. If we were to go tour Germany for three weeks by car, think of how much easier it would be in getting directions, reading road signs or ordering a meal if we could speak German. Trying to tour through and operate in business is much harder when you don't speak the language!
You can learn accounting on line, free in various courses being offered.
You can also get with an accountant or bookkeeper and they can assist you in getting started.
I'd suggest that if you are to be in business, this is where you need to begin in setting up any company. How you select your tax elections in forming a business will depend on what you will be doing and how you will be accounting for your income. ;)
Thanks @Bill Gulley for that thorough reply!
My intent is to start keeping my financials separate now that I have a 2nd rental property and am going to establish a proper business. That includes the use of a separate business checking account where all rent checks will be deposited and all rental-related expenses will be paid out of.
But you've made me realize that there is more to this than keeping things separate. I use Quicken already, I'll see if I can make that work or if it's better to start using Quickbooks.
I meant QuickBooks, LOL. Good to hear! Good luck! :)
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