Business checking accounts are an essential tool and typically a requirement for any business operated as a separate legal entity from the owner. But in the modern world where side hustles, gigs and multiple income streams are common, the question of who needs a business checking account is a lot less clear.

Between the fees and stringent paperwork requirements to open a business checking account, it’s understandable why side hustlers might avoid getting one.

But there are a number of excellent reasons why any small business owner can benefit from a business checking account.

1. Tax Simplification

The IRS recommends that all small business owners have separate bank accounts. While a sole proprietor—an individual who owns a business and is personally responsible for its debts—is not legally required to use a business checking account, it’s still a good idea from a tax perspective.

In particular, a business checking account simplifies the process of paying quarterly estimated taxes. Since your small business income is not subject to withholding, you are on the hook to pay estimated taxes quarterly. Calculating your business income and expenses will be a quarterly headache if you run your business through your personal checking account.

What’s more, the IRS requires sole proprietors to identify their business and personal transactions within their personal checking accounts so they can accurately file their taxes. And don’t forget: An audit of your business could expose your personal transactions to scrutiny if you mingle personal and business transactions within your consumer checking account.

2. Professionalism and Credibility

Many small side businesses start as lucrative hobbies. If you start an Etsy shop, for example, you may think of your business as a fun hobby, even as you get more sales.

But having a business checking account adds professionalism and credibility to your small business, even if it started as a hobby. Your clients and customers will be more inclined to trust your business when payments and transactions move through an account that uses your business’s name.

Finally, the issue of professionalism and credibility could affect your taxes in an audit. If you show no profits for three years out of five, the IRS will classify your business as a hobby, and you will not be allowed to deduct any expenses or take any loss for it on your tax return. While maintaining a separate business account for your business does not automatically confer “business” status on a venture, having a business checking account and keeping detailed records of your business transactions can help to show the IRS that you have a legitimate business.

3. Liability Protection

One of the benefits of registering your business as an LLC or corporation is the separation it offers between you and your business. This can protect you from personal liability in case something goes wrong at your business or someone tries to sue your business.

However, just registering as an LLC or other business entity is not enough to provide you with liability protection if you mingle your personal and business funds in a personal checking account. Unless you keep your personal assets and business assets separate, you could make your personal finances vulnerable since the mingling of assets makes it appear as though the business is not a separate entity.

4. Preparing You for Future Growth

Whether or not you intend for your small business to grow, having a business checking account gives you more options for future growth. For starters, having a business checking account legitimizes your business if you ever decide to apply for a business credit card or a business loan in the future.

Additionally, you’ll need a business checking account if your business grows. You’ll have a much easier time handling your financial accounting—including employee payroll responsibilities—if you start with a separate account. Opening a business checking account can be a savvy way to plan for potential growth.

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