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  • Jennifer Wehinger

Wait... Is PayPal a bank?

How to truly separate your business and personal banking


You’ve heard it a hundred times: Keep your business and personal accounts separate!

That is as true today as it’s ever been. But today’s banking environment can cause some new wrinkles in this seemingly simple concept.


The concept is, open a separate business checking, credit card, and optional savings account and only use them for business transactions. Simple right? But today we are given numerous ways to spend money and often we don’t think of these as banks, per se. PayPal, Venmo, Zelle, are a few examples of how we pay and receive payment for services and products. I’ve found many of my clients create one PayPal account for all their needs and connect both personal and business credit cards and checking accounts to it.


On the surface it seems like you’re still separating them. If you’re buying a zester for your Lemon Chicken recipe, you pick your personal credit card on the checkout. If you’re buying a new lock for your business investment property, you choose your business credit on checkout. Seems easy, right?


The transactions you make on PayPal will show up in the corresponding bank and can be traced that way, but the system is not perfect. I’ll tell you why . . . PayPal also keeps a balance in your account, thus making it act like a bank’s checking account. There is an option to spend money from your PayPal balance, and I’ve seen this get hairy.


Consider this example. On Tuesday you receive a $100 payment from your client, then you purchased two items from The Home Tool Company for $40. That evening or the following day PayPal, responding to automatic transfer setup options, transfers $60 to your bank account. If you’re bookkeeping off the bank transactions only, you’ll see a deposit of $60. Most people will record this as income. But it’s actually two transactions. If you record it as one $60 deposit you will misrepresent your income and you’ll miss out on a deductible business expense.

Because of the complexity this causes, it is easier and advised, to connect your PayPal account directly to your bookkeeping system.


But wait! When you do this, ALL of your PayPal transactions feed into your business books. That zester shows up in the business books because the bank feed cannot distinguish between personal and business transactions. There are plenty of ways to write it off as an owner’s purchase, but it creates more questions, confusion, and time to correct it. This leads to accidental mixing of personal and business.


To truly separate the accounts you need to create two separate PayPal accounts for business and personal use. Consider all the ways you receive money and pay others. Will there be confusion when it’s time to do bookkeeping?

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