Business Banking and Tax Considerations
Establishing a new business is a bit like having a baby. You are giving life to an entity that is not a human, but it has the capability of interacting and forming partnerships with people or other entities, and it has its own lifespan that can outlive your life. One of the benefits we can give this new entity is the ability to survive financially, and that involves things like having money in a bank account, creating business credit, and having the ability to pay taxes and bills.
In this article, let’s discuss a few of the necessities to make your new entity a vital and “living” one.
Independent Identity
A business entity is best if made separate from its owner. You can operate a sole proprietorship and use a “doing business as” (dba) identity, but that entity will use your Social Security Number as its tax identification number, and it does not provide the protections of separateness in either taxes or in lawsuits. One of the best ways to create clear separateness is to establish a separate bank account and credit and run financial transactions separately through the entity. LLC’s and S-Corporations are common choices for startup businesses.
Bank Accounts
One of the functions of an entity is for it to operate separately from the owner in terms of finances. To do this, separate bank accounts and records must be maintained. One of the “litmus tests” used by the IRS and the courts in the event of an audit or lawsuit is whether the business does operate independently in terms of finances. To. Set up a bank account, the business will need to have an Employer Identification Number (EIN) with the IRS, which is the equivalent of a Social Security Number for businesses. Banks will require that you have your business registration with the state, your EIN, and proper identification for any person who will be using the bank account as an authorized official of the business. Set up a checking account right away, and other accounts may be established later for operations, expansion, etc.
Other Business Banking Considerations
- Work on establishing business credit and establishing a Dun and Bradstreet number for the reporting of your credit activity. Having business credit give you leverage in business building.
- Establish a business budget, we use them to manage our personal finances, and should have one for our business as well. Large expenses should be planned and budgeted for.
- Give yourself a salary and stick to it.
- Separate home and office physically within your home, and emotionally with your family, so that everyone understands the importance of your work time.
- Keep separate records for your business, whether that is a shoebox full of receipts, or a log of expense and business use of car, cell phone, etc.
- Work with a business accountant, they should be a valued part of your professional team and help you with planning of business expenses and understanding what is and what is not deductible.
Finally, we would like to cover one other subject about business banking, and that is online banking. About 73% of businesses use online banking on a regular basis. It has become a valuable way to improve efficiency. It is also secure, but it is not impenetrable. Be very careful about how you use online banking. Your passwords need to be complex and unique, do not use the same password repeatedly, do not do banking in internet cafés or other public internet locations, including airports. Secure your credit cards with RFID protection against identity theft and use two step logins on your most important accounts.
Our objective is to provide you with the best tips and suggestions to grow your business and deal with tax related issues. We care about your business success and wish you the very best in all you do!
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