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    6 Replies Latest reply on Mar 3, 2009 12:47 PM by atoninfo

    Payroll Account Vs Other Account

    atoninfo Wayfarer
      I recently started my own Software consultanty business. I am the only one employee working for the company right now and I don't plan to hire anybody else for next 1-2 Yrs. I am looking for advice on how to use two checking accounts which I opened recently.

      When I opened a small Business Account with BOA over phone, the associate asked me to open two checking accounts. One for payroll and one for "normal" checking. I don't know the "best practice" to use such accounts. I usually get a payment check for my consulting hours which I deposit into "normal" checking account. I then run payroll using the same account and deposit the employer taxes into "payroll" account. Is this the way to go or is there a better way?

      Thank you in advance!
        • Re: Payroll Account Vs Other Account
          PKSCPA Wayfarer
          Normally the Payroll account is used for payroll purposes. So when a payroll is due the total amount of the net payable to the employee,taxes withheld and the employer share's of payroll taxes is tranferred to this account and disbursements are made out of the payroll account.
          • Re: Payroll Account Vs Other Account
            LUCKIEST Guide
            Payroll Account, Welcome

            Best of luck with your new business. Since you are the only employee, do what is best for you. PKSCPA gave you info on two accounts, and when you have more employees, you will want to go that route.

            Go to Members page and share some info about yourself and your company

            • Re: Payroll Account Vs Other Account
              Yardbird Wayfarer

              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.