written by MO.com Subject Matter Resource Nellie Akalp
If you’ve recently incorporated your business or formed an LLC, congratulations! You’ve taken a significant step toward getting your business legal and protecting your personal assets. While you probably had a few questions leading up to your decision to incorporate (such as what type of entity to form), I’ve found there can be just as many questions after incorporating a business or forming an LLC.
Once you’ve incorporated, be sure to follow all the rules of incorporation required by your state law. If you don’t, your ‘corporate veil’ can be pierced and a plaintiff can seek recovery against your personal assets.
Here is part one in a two part series on Mo.com with some of the key steps to take when navigating life after the incorporation or LLC formation process:
1. Close the books on your sole proprietorship
If you filed the Corp/LLC under the same name as your sole proprietorship, you can start conducting business under the Corp or LLC. In this case, you can cancel the DBA (Doing Business As) that you had set up with your sole proprietorship, or just let it lapse. That’s from an entity standpoint.
From a tax perspective, you should consult your accountant/CPA about when is the best time to close the books on your sole proprietorship and open them on your Corp/LLC. This decision can have some pretty hefty tax implications and some professional advice can go a long way.
2. Start managing the taxes for your Corp/LLC
Now that you’ve formed your company, it’s important to get the tax structure set up for your new business. That’s why we’ve partnered with Corporate Tax Network (CTN) to provide you with a ONE HOUR FREE BUSINESS TAX TRAINING WEBINAR.
During your free consultation, you’ll learn all the important details on how your business is taxed and what you need to do to stay compliant with IRS requirements. In addition, you’ll discover how your small business can save money by understanding the right way to pay yourself, what happens when you have a loss or profit, as well as those commonly missed small business deductions.
3. Get a new Federal Tax ID number
An LLC or corporation is its own separate entity (remember an LLC or Corp can sue, be sued, get a loan…) and as such, it needs its own federal tax ID number, also known as an Employer Identification Number (EIN). Think of business formation like the birth of child. Once a child is born, it needs its own social security number. The same holds true for your business.
If you’re operating your business as an S Corporation, LLC, C Corporation or other legal entity, you must obtain an EIN for that entity. Otherwise, you will not be able to open up a business bank account or file your business tax returns properly. Visit the IRS website to learn more about the EIN and apply online.
4. Open a new bank account and don’t commingle personal/business finances
You’ll need to open a bank account in the name of the Corporation or LLC. In most cases, you’ll need your business’ EIN number before you can open a business bank account.
Setting up separate accounts is just the first step; you need to use them properly. You should keep accurate financial records for the corporation, showing a separation between the corporation’s income and expenses and that of the owners’. Never use corporate checks for personal debts and vice versa.
Nellie Akalp is the CEO of CorpNet.com, an online legal document filing service, where she helps entrepreneurs Incorporate or Form an LLC for their new businesses.