Bank Account Question.. (1 Viewer)

[DeathStar1]

Here's something we've been wondering. I don't know much about this stuff, so please excuse the sketchy explination.

We have a buisness account setup for my web server company. Aside from Online bills and taxes, everything else is already payed for. I have no employees, just little old me. I was TOLD, that the only way I might be able to spend my earned money on daily expenses like groceries, DVD buying, etc, is if I gave myself a paycheck. In other words, you can't just go out to a bank, enter in an account number, and draw funds like you could with a personal account.

But I figured, so long as you record that someone payed you for your services, and write yourself a check, you should be able to spend the money you earn like any other account. Is this correct?

As stated before, I'm still trying to figure this stuff out before I spend anything in that account. So, Assuming this explination makes any sense to any bankers out there, care to fill me in? I'm looking to spend two recent checks on a GBA SP . This would also greatly help clear up any confusion to buy those TNG season sets I've been holding off on.

Thanks!

 

[Nathan*W]

Okay, how can I say this in easy terms...

The money in that business account DOES NOT belong to you, it belongs to the business. The rules of business vs. personal banking were set up long ago to prevent (or discourage) a corporate exec. from using corporate funds for personal uses. The number of employees a business has is irrelevant. The bank (and government) treats your business as a separate entity. That way, if your company ever gets sued, they may get the company profits but not your personal money.

But I figured, so long as you record that someone payed you for your services, and write yourself a check, you should be able to spend the money you earn like any other account. Is this correct?

Just get some blank payroll checks, and pay yourself for your services! Think about an IRS audit. A payroll check and a withdrawal slip for the same account can have two vastly different connotations. Your tax attorney may have better advice that this, but as with all things financial, CYA!

 

[Dennis Nicholls]

Neil,
Try getting some of the Nolo Press books on running a small business www.nolo.com (they also have a great lawyer joke page). If you comingle your funds the IRS will come and talk to you - you don't want that.

 

[DeathStar1]

Hmm, I kind of figured that might be the case. I have to ask our higher ups about this. Luckilly, my father owns his own buisness, so he should be able to know more concretly what I can do. Only problem is, if I can write myself a paycheck, he wouldn't want me 'waisting' it on a GBA SP, so I figured I'd ask here, heh.

Thanks for the info...

 

[DeathStar1]

A little reading on the subject might not definetly be a bad idea. Thanks for the heads up .

Good thing I'm not making much anyway. With only two customers, that dosn't equal a whole lot to wanna spend right now .

 

[nolesrule]

Neil, all the advise I've read here really applies to corporations.

If your business is registered as a sole proprietorship to your name, then you can spend money directly out of the business account any way you like at any time (just make sure you track it as an owner's equity draw and don't classify it as a business expense.

SPs do not have to draw a paycheck. The reason why is because all payroll-type taxes are paid through self-employment taxes based on the Schedule C on the personal income tax return. SPs are a personal business and all the money in the account belongs to the owner of the SP business. That doesn't mean they shouldn't be accurate in their bookkeeping though.

I am an SP and I pay for personal stuff all the time with my checks. Nothing wrong with what I'm doing, according to my accountant, who is my dad. Of course, because I work out of my home, I never have negative equity (which means you would owe money to your business) in my company because of business portions of bills paid with personal money. So I've never withdrawn money I haven't earned yet or hadn't put into the business.

At the end of every year, all net income for the previous year becomes owner's equity in the company, and can also be withdrawn at any time.

All of this only applies to SPs. Corporations are different, and those require registering as an employee and drawing a paycheck (and paying payroll taxes).

 

[MikeAlletto]

If you want something buy it. Then fill out an "expense report" for your company. Then cut yourself a check from the company funds in the amount of the expense report. Don't call it a paycheck then you have to take taxes out of it.

 

[JayV]

All of this only applies to SPs.

And to be clear, Joe is not referring to the GBA SP!

I'd like to second the recommendation for Nolo Press. There are a lot of resources out there for people in your situation; a quick trip to a book store or amazon.com will help you find what you need.

Another thing: A couple hundred bucks spent now can avoid a lot of heartache down the road. If you are looking for legal or financial advice, get it from a licensed professional. There are a lot of pitfalls you may not be aware of when running a business. Pay for an hour or two with an accountant or a lawyer well-versed in small business.
-j

 

[Nathan*W]

Pay for an hour or two with an accountant or a lawyer well-versed in small business.

The best advice in this thread.

 

[nolesrule]

No way should you do that. Expense reports should be only for reimbursing employees (or yourself) for business expenses paid out of your own pocket.