Yes. Accounts, plural. Law practices, even start-up solo practices, are separate legal entities. Law practices should have at least two bank accounts. In addition, lawyers have personal accounts, which are separate from the law practice accounts.
The firm’s bank accounts:
- A business operating account for the practice income (e.g., collected fees for services rendered) and expenses (e.g., rent, salary, stamps.com payments). When the IRS and California Franchise Tax Board open the audit for the business, these are the bank records the business will provide.
- A client trust account, which is the mandatory IOLTA account, to hold client deposits to secure legal fees and to pay for anticipated costs. One trust account may hold the funds from all clients. Record-keeping for this account will itemize all revenue and outlay by client. Lawyers whose clients are other lawyers or law firms; e.g., appellate lawyers, contract attorneys) may use the client trust account approach to segregate and account for client financial transactions distinct from the firm’s business operating account.
The firm may have a business credit card account. Use this credit card solely for the firm’s business, and pay the credit card bill using the firm’s business operating account.
Practice tip: Be a tax document hoarder. Keep paper copies of your monthly bank and credit card statements for seven (7) years, to respond to IRS or California tax audit inquiries. Electronic copies of bank records will not always be available; in fact, financial institutions are reducing the number of years of information kept in electronic archives. Obtaining otherwise archived financial institution documents is extremely expensive. Keep paper copies of proof of capital expenditures, equipment warranties, leases, insurance policies, and the like. Software is upgraded, USB drive storage breaks down, cloud storage is hacked, and cloud providers implode. Your current phone will not yield everything you are storing on it for as long as you need to retain the information. You don’t believe any of this. Nonetheless, protect yourself with paper files. Not being able to obtain expense, cost basis, and even income substantiation never results in a tax determination in the taxpayer’s favor.
A lawyer’s personal bank account(s):
Lawyers like any economically functioning person have personal bank accounts, using a mix of checking and savings accounts that suit their personal finances. The lawyer’s personal bank accounts should not be used to transact the law firm’s business. The only deposit from the law firm to the lawyer’s personal account should be a salary, bonus, or other on-the-books distribution from the firm to the attorney. Or, perhaps expense reimbursement for a firm expense on an exception basis. Similarly, lawyer’s personal expenses should never be paid from the law firm’s accounts. Once the integrity of the firm’s finances is corrupted through intermingling with the lawyer’s personal financial affairs, it is very difficult, and expensive to unwind the commingling and even more difficult to resist repeated transgressions.