Here is our third weeks round-up of questions I am often asked. Don't forget to leave your questions in the comments section or on Washburn's Consulting FB page so I can answer them for you and others!
1. Do I need to separate my business and personal account? What bank is best?
Yes, if you are operating a business, even a sole-prop, you need to keep your business and personal separate. It is against bank regulation to use a personal account for business purposes and entities, such as LLCs, have the legal requirement to have a business account written into the law on top of the banking regulations that apply.
As far as choosing a bank, it needs to be based on you and your needs. I have worked for big banks, community banks, private banks, and credit unions. At the end of the day, they are all the same, they really are. Think about what YOU need from a bank. Do you need a local branch, excellent technology, 24/7 customer service? If you decide to go with a small local credit union and they don't offer 24/7 customer service and you can only travel to the bank on weekends and their closed, does that sound like the place for you? Are you a frequent traveler? If your debit card is lost/stolen/damaged while you are out of state and it happens Friday evening, you won't be able to get help until Monday. You need to consider all of those factors and possible situations.
I know "big banks" are not popular nowadays (again, all of the banks are all the same, some just get their secrets leaked more often than others), but I always recommend having a second account at a bigger bank as a back up for situations like those mentioned above. Especially if you do travel a lot, as larger banks are everywhere and if they are not, they have "sister" banks where you still can be assisted.
2. When do I need an EIN?
If you are operating as a Sole-Proprietor you are not legally required to obtain an EIN, although if you would like to, you can do so via the IRS website and it is free. If you are operating as any other type of entity (LLC, S-Corp, SMLLC, Corp, etc.) you are legally required to obtain an EIN. You should wait to get your EIN after you have filed with the State to ensure your business name is available and you have been approved to use it, or you'll have to file for a new one. As a side note that I will go further into on a separate blog post, if you are starting a non-profit, you have to be approved by the state and other appropriate agencies to operate as a non-profit before you can obtain an EIN. If you do not, the IRS can cancel the EIN even if you do end up getting approved to operate as a non-profit (not worth the risk and time). They do tell you this when you are applying on the website, but it can easily be missed.
You can only be issued an EIN from the IRS via their website, mail/fax or in-person. Be careful if you are searching online as there are a few websites that look to be a legitimate website but they will charge you a fee.
3. Can a client direct deposit to my account?
If you are comfortable with them doing so, yes. You will provide them with your banking information (routing number and account number) and they process the direct deposit (ACH) on their end. Do be cautious doing this as an account number and routing number is all someone needs to initiate a fraudulent outgoing transaction from your account. I also recommend providing them with your own direct deposit form (from your bank or you can Google one) and do not use theirs, as more often than not they provide you the form they use for their employees which allows them to debit the account should they have "overpaid" you. They do not have to notify you in advance of doing this and do not have to provide a reason to the bank. They simply initiate the debit, provide the right banking code and it will be processed. Another great reason to ensure your personal and business funds are separate.
Don't forget to send those questions my way!
**The following is intended for educational purposes only, not financial, legal or tax advice and does not qualify as a consultant-client relationship.
Montanna is a Licensed Bank Auditor, aPHR and a Business Consultant specializing in business incorporation, who has been in the industry for 15 years.