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Business and Personal Accounts Confusion

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Question: 
We have a customer who owns a business that is listed as a sole proprietorship with its own EIN. A man and wife own this business. They have several direct deposit accounts with us, one of them being a personal money market account. The only transactions that seem to go to the account are ACH credits for the business. These ACHs go on daily, with sometimes large amounts. I guess what I am wondering if this is OK. Shouldn't the ACH for the business be going to the business account?
Answer: 

From a strictly legal perspective, a sole proprietor does not have to segregate personal transactions from business transactions. It's clear, however, that keeping them separated provides a better framework for business income and expense reporting at year end (even though all the numbers ultimately work their way through the individual's tax return).

It looks like this business is running its credit and debit card receipts through the money market account. There is nothing wrong with that, but transfers from the account are limited by the definition of savings account in Regulation D.

I recommend that you review the ownership of the account, however. It is unusual for a married couple to own and operate a sole (sole meaning "one" owner) proprietorship.1 You will probably find that the business is owned by one of the spouses, and the other spouse is an authorized signer. If that's not the case, perhaps the business is actually owned by a partnership, formal or otherwise, of the spouses.

1 In a very few states (California is one example), a husband and wife may legally act together as a sole proprietor. In such cases both spouses could sign on the account as the owner(s).

First published on BankersOnline.com 7/05/10

First published on 07/05/2010

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