In the first part of this post, we began discussing some important things to know about taxes when you’re opening a small business.
We touched on factors involved in entity selection and the fact that employers face often tough choices on how to classify workers for tax purposes.
In this part of the post, let’s look more closely at issues involved in handling bank accounts properly.
As we noted, it is a wise practice to use your Employer Identification Number (EIN) when opening a business account. This is preferable to using your own Social Security Number (SSN) for a couple of reasons.
One is that it makes it clearer which funds are yours and which are your businesses. After all, if your business gets sued, you don’t want to put your personal assets at risk.
Keeping separate accounts also makes it clearer which expenses are business-related and which aren’t. This makes it easier to file your taxes. And if it ever becomes necessary to respond to an audit, having separate accounts would help to facilitate that response.
Indeed, if you have employees, it may make sense for you to also have an account dedicated solely to payroll taxes.
Payroll taxes include both Social Security and Medicare taxes. As an employer, it isn’t only that you have to pay a share of these taxes for your employees. You also have to collect and pay over to the government the employee share of those taxes.
Withholding those amounts from employees’ paychecks and making those payments to the government is an administrative burden. To take that burden off your shoulders, you may want to consider using a third-party payroll service.