For Tax Purposes--Small Business Bank Account Management

You need a separate small business bank account for tax purposes and to keep from getting in trouble with the Internal Revenue Service (IRS). All of your household expenses should be debited from a personal account, which is attached to your Social Security number, and your business account should be associated with an employer identification number (EIN) for your business whenever possible. You are considered an employee for your business--you don't have to hire anyone else to obtain an EIN. Here's what else you need to know about small business bank account management for tax purposes:

Don't Commingle Business and Personal Funds

It's easy to mix the funds in your personal and small business bank accounts, especially when you do online banking and your operation is small. Most banks allow you to make transfers between accounts, so you may not view it as a big deal to use money in your business account to write rent checks. After all, you reason, you can replenish the funds later. However, this habit or one such act is enough to trigger an audit down the road by the IRS. It's not worth the risk. Take great pains to manage your money accurately and separately, using financial software if you can to simplify your task.

Bank Account Interest Statements

If you do earn bank interest on money in your small business bank account, you'll need to report that for tax purposes. The IRS counts that as income, and it needs to be factored in when determining your tax liability or refund. More often than not, you'll have to be proactive to make sure you receive the tax information from your bank stating all interest you accrued during the tax year you're filing for. Most banking institutions make this information available online. If you're using a tax software, such as turbotax.com, then you'll be asked to enter the information. Your accountant or tax professional, if you don't use a tax software, will also ask for copies of bank tax statements to obtain that information.

Bookkeeping and Bank Accounts

Some businesses suffer financially because they fail in the area of bookkeeping. The owners make deposits and write checks without balancing the books in a spreadsheet or accounting software or with the help of a bookkeeper. As a result, when it's tax filing time, they don't have an accurate picture of where their money went or where it came from. For example, you can't rely on looking at your bank statements to determine which clients paid for what service, or how many widgets you sold per category. Your record keeping needs to be as detailed as possible so that you can get the most out of business deductions and other tax breaks available to you as a small business owner.

With many financial institutions offering small business bank accounts that don't charge monthly fees or require a minimum balance, there is little excuse not to open one. Banks will even offer temporary checks and free debit cards to get you started.

blog comments powered by Disqus