Hobbies, Bank Accounts, and a CPA Trying Not to Bore You

I have the privilege of taking over the Quill Pen Editorial blog today to talk with you about something that is exciting to me but likely not so thrilling for you—bank accounts! As a writer, how do you know when to open a separate business bank account, and how does that work if you are still in the building phase of your writing business?

Honestly, I don’t get giddy about bank accounts either, but I do understand how important they can be for you as a writer.

Let me explain briefly why I might be worth listening to on this topic. I am the founding partner of the aptly named firm Chris Morris CPA, and one of my specialties is working with editors, writers, artists, and other creative entrepreneurs to make sure that your taxes and accounting make sense.

Okay, now that you are convinced I am amazing, let’s move on the topic at hand.

  • When is the right time to open a separate business account?

This is one of the questions I am asked the most often by creative entrepreneurs. You’ll notice I have used the terms business and entrepreneur several times already, and that is on purpose. It will be beneficial for you to open a separate business account as soon as your activities will qualify you as a business. Of course, this begs the question—when do I have a business?

  • When do I have a business?

It’s not actually very difficult to know if you have a business or not. There are only two considerations:

  • Do you have something to sell? Your products could include books, courses, editing, social media management, or anything that somebody else will pay you for. If you don’t have anything to sell, then you don’t have a business.
  • Is your product actually selling? This is a tough pill to swallow, because it feels harsh. Before you go all Hulk Hogan on me, notice I did not say it had to sell well; it just needs to sell. Even one is enough to sell.

It is reasonable to set up as a business shortly before you have a product, in order to capture all the expenses related to building that product. Be careful not to be obnoxious about piling up losses though, or you might increase your risk of an audit. You only have to worry about audits if you have years of losses in your business, or if you claim a ridiculous amount of expenses.

  • I do qualify as a business, but it doesn’t make sense to me to open a business account.

Hey, you’re cheating…that’s not a question. That’s all right—I’ll answer it anyway. A common objection I hear when I tell creative entrepreneurs to open a separate business account is that having a separate account doesn’t make sense.

Usually, this comes to me in one of three ways:

  • I am losing money.
  • I am barely making any money at all.
  • All of my transactions are through PayPal or Square.

Why go through the hassle of having a business account, if it is just going to sit there and collect dust? Actually, there is an excellent reason to open that account anyway, and it only takes three letters to explain: IRS.

The IRS expects to see a record of the revenue you earn from your clients, and the expenses you had in building your business. The easiest way to accomplish this at the end of the year is to have a separate business account, and to only use it for legitimate business expenses.

Believe me, on more than one occasion I have received a shoe box full of receipts from a client in the mail, with an apologetic note that sounds something like this: “Most of these are for the business, I think. Actually, I am not sure. That’s why you’re the CPA and I’m the editor, right?” I am left feeling like I need to find my secret decoder ring to figure out what is happening inside the shoebox.

Nobody should need a cipher key to prepare your taxes. In other words, whoever your tax specialist is (whether that is you, me, your spouse, or someone else) will thank you when it comes time to divvy up the amounts due to the IRS. If you give this person the bank statements and are prepared with receipts or explanations for everything that happened on them, tax time will be smooth.

Wrapping it up

Opening a business account is one of the smartest things you can do, once you move past the exploratory phase and have a legitimate business to manage. You will be able to more easily prepare for tax season. Plus, you will have a better sense of how your writing, editing, or artistic endeavors are going from a financial perspective.

I would be happy to talk with you about this or anything else that is tax or accounting related. I love partnering with creative entrepreneurs, and I give you my word that I won’t hard-sell you on anything.


Chris Morris is the founder of the creatively named CPA firm Chris Morris CPA, which focuses on helping creative entrepreneurs manage their tax and accounting needs. Because he is a writer himself, and over 1/3 of his clients are writers or editors, he is very familiar with navigating tax laws for this industry. He is a fan of stories with dragons, warp drive, or epic sword fights, though he does not write fiction himself.

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