- Posted by MatadorAdmin
- On September 12, 2017
When you start your own company, it is important to keep your personal finances separate from your business finances. Doing so will make it easier to seek outside investment, do your business taxes, and keep track of your company’s profits for the year. What are some other good reasons to separate business and personal finances, and how can you accomplish this goal?
How Do You Open a Bank Account for Your Business?
To open a bank account for your company, it may be necessary to first get an employer identification number (EIN). This is akin to a Social Security number for a person, and it may also be necessary to bring paperwork showing that your company has been incorporated. From there, the process of opening a bank account is generally no different for a business than it is for an individual. If you have any questions about why or how to open a bank account for a business, it may be wise to talk with a business law attorney.
Corporations Must Have Their Own Bank Accounts
If you are running your company as an S or C corporation, the company is an entity separate from yourself for tax and legal purposes. Therefore, it will need its own bank account in addition to its own tax ID number. Keeping a separate bank account allows investors and shareholders to keep track of how much money comes in and how it is used. By keeping clear records, you can inspire confidence in your investors and ensure clients and customers that your business adheres to generally accepted accounting principles.
Business Owners May Take Distributions of Profit
Another good reason to have a separate bank account for your corporate entity is that business owners may be allowed to take distributions of profit. It is important that these distributions are tracked properly because they have different tax implications than regular wages. Distributions are considered ordinary income that are free from FICA taxes.
This is different than a regular wage that includes FICA taxes and other deductions. The IRS will track all of these distributions to make sure that you still took what it considers to be a normal salary for your job title. Having a separate bank account makes it easier to identify each withdrawal that was made and whether it went toward your regular salary or was an owner distribution.
Don’t Mix Personal and Business Expenses
Let’s say that you bought a car that was intended for business use. If you make the payment with money from a personal bank account, the IRS might not see it as a business expense. At best, it may claim that the car was used for both personal and business use.
Paying business expenses from a dedicated business account makes it clear that you had a corporate expense that can be deducted from your organization’s taxable income for the year. If you have any questions about how business expenses may impact either your corporate or personal taxes in a given year, it is recommended to talk with an experienced professional such as the Scottsdale Estate Planning Attorney locals have been trusting for years
Starting your own business can be liberating. However, it also means making sure that you keep your business and personal finances separate.
A special thanks to our authors at Hildebrand Law for their expertise in Probate and Estate Law.