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Re: Payroll Account Vs Other Account Mar 3, 2009 9:01 AM
Part of the answer to your question is how you are organized as a legal entity and how you will be taxed as a result. For example if you are either a sole proprietor or an LLC taxed as a sole proprietor, there is no reason for a payroll account at this time. That is because you will be taxed on the net income of the company and you can take distributions from the company out of profits for your personal "payroll". You then pay quarterly estimates to the government for your income and personal payroll taxes.
If you are going to be taxed as a corporation (or an LLC taxed as a corporation), then you will need to have a payroll to pay yourself. Once a payroll account is needed, typically an account called an imprest account is set up to segregate the transaction for payroll. An imprest account typically escrows the payroll and taxes and maintains a minimal balance (perhaps $250 in this case). The account then always reconciles back to that balance. If there are fees for maintaining the account, then that is also a consideration.
While this is best practice for payroll in a corporation, as the sole employee of your company for the foreseeable future, you can still use a single bank account. It may add a bit of complexity to the reconciliation process, but should not be unmanageable, particularly if you have a part-time bookkeeper help maintain your records.
A word of caution. Regardless of how you will be paid from your company, be sure to set aside the tax obligations out of each check you receive. Don't be tempted to use tax monies for business or living expenses. Make sure you remit taxes as required. The penalties & interest associated with these items can be significant, so don't fall into that trap. If you need help with the tax areas, work with a local CPA to help you get properly organized.
Best Wishes & Good luck on your new venture.
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