Converting Personal Accounts Into Small Business Name

Small business owners and independent contractors need more than personal bank accounts.  It is advisable to open a new small business account.  Any business funds currently in the personal account should be deposited via a check from that account to the new business account, noting information on its source. It is imperative not to use personal bank accounts for business.  Separate accounts assist in maintaining good standing with the IRS.  

Although there may be times when a partner might convert personal accounts into a small business account, it is generally best not to co-mingle funds.  An example of such a time could be when the company needed a cash infusion and one (or more) of the partners had extra personal money available to infuse into the business. This could probably be a loan, or a situation where that partner would derive more interest in the company.

If one has been doing business prior to incorporating, personal accounts can be changed to small business accounts.  The SSN on accounts is replaced by an EIN for all suppliers, customers and banks. The EIN converts from "common law employer" (natural status) to "covered employer" (artificial status). It is required by law to withhold social security tax from "covered employees" (those using a SSN). The Federal Regulations Code for Title 20 at section 404.1001 states under paragraph (a)(2): "If you are an employee, covered work is called employment" while section 404.1003 states: "Employment means, generally, any service covered by social security performed by an employee for his or her employer."   When an individual uses an EIN, the covered employer must withhold payroll taxes from covered employees. 

A sole proprietor once set up a small business account to track revenues and expenses, presenting a professional image to clients and suppliers alike.  Eventually business slowed down over a period of months, forcing them to close the business account and revert to using the personal account, only to find it was not advantageous to do so.  It was more work to ascertain exactly which funds were from the business, not to mention asking clients to make checks out to a personal name. For help with questions about tranferring personal accounts to small business accounts, please contact us.