While you technically can use a personal bank account temporarily for your LLC, doing so is a risky practice that can undermine your liability protection, complicate taxes, and lead to legal or financial trouble.
When you form a Limited Liability Company (LLC), you’re creating a legally separate business entity. One of the main benefits of this structure is protecting your personal assets from business liabilities. But that protection is only strong if you treat your LLC like a real business-including keeping its finances completely separate from your personal ones.
Contents
1. Why People Use a Personal Account (and Why It’s Risky)
Many new business owners start small and delay opening a dedicated business bank account. Reasons include:
- Waiting on the EIN or state formation documents
- Bank application delays
- Belief that early revenue is too small to justify a business account
While this seems harmless, using your personal bank account-even for a short period-introduces a serious risk called commingling funds. This is when personal and business finances are mixed, making it difficult to tell which money belongs to the company and which belongs to you.
2. Commingling Can Void Your Liability Protection
If you’re ever sued or audited, and you’ve been using a personal bank account for your LLC, a court may decide that you haven’t treated your business as a separate legal entity. This can result in the court “piercing the corporate veil,” making you personally liable for business debts or legal judgments.
Once this happens, your LLC status no longer protects your home, savings, or other personal assets from creditors or plaintiffs.
3. Tax Complications and Bookkeeping Problems
Even if you aren’t sued, using a personal bank account makes tax season unnecessarily difficult. You’ll have to manually separate business transactions from personal ones to prepare your tax return, which increases the chances of:
- Misreporting income or deductions
- Triggering IRS audits or penalties
- Overpaying or underpaying taxes
Maintaining a dedicated business bank account keeps your records clean and simplifies your accounting, especially if you’re using bookkeeping software or working with a tax professional.
4. Why the IRS Cares About Separation
The IRS expects LLC owners to operate with a clear line between personal and business activities. If you use a personal account, the IRS may classify your LLC as a “disregarded entity” in practice-even if you followed formation rules on paper. That could affect how your income is taxed and your ability to claim certain deductions.
In short, the IRS looks at what you do-not just what you say you are.
If you’re in the very early stages of forming your LLC and waiting for paperwork, it might seem unavoidable to use your personal account to collect early payments or cover startup expenses. If this happens:
- Open a business account as soon as possible
- Keep meticulous records of every business-related transaction
- Transfer those funds to your business account as soon as it’s opened
- Avoid paying personal bills with money earned by the business
These steps won’t fully undo the risks, but they can reduce the chance of legal or tax trouble.
6. How to Transition Properly
Once your EIN and Articles of Organization are approved, you can open a business bank account. Make the switch immediately by:
- Depositing future client payments into the new account
- Paying all business expenses from the new account
- Recording any reimbursements from the LLC to your personal account for earlier out-of-pocket expenses
Establish a clear boundary moving forward to help maintain the LLC’s legal protection and simplify your financial tracking.
While you might be able to use a personal bank account temporarily for your LLC, doing so puts your liability shield and tax compliance at risk. The safest approach is to treat your LLC like a real business from day one. That means opening a separate business account as soon as possible, even if you’re only handling small transactions. Your future self-and your accountant-will thank you.
