S Corporation Bank Account: Everything You Need to Know
To open an S corporation bank account, you must first obtain an Employer Identification Number (EIN).3 min read
To open an S corporation bank account, you must first obtain an Employer Identification Number (EIN). You may need two bank accounts, one for regular business transactions and another one for depositing the withheld taxes.
One of the major advantages of incorporating your business is that you can conduct business as a distinct legal entity. A corporation can have a bank account in its own name, which helps to keep your personal finances separate from the business.
What Is an S Corporation?
An S corporation or S-corp is a special designation that entitles your business to certain tax privileges. The members of an S corporation enjoy the dual benefits of limited liability and pass-through taxation. However, you will be liable to pay Medicare and Social Security taxes on wages paid to your employees, including yourself.
The IRS has set out the following ownership rules for an S corporation:
- You can't have more than 100 shareholders.
- You can't issue more than one class of stock.
- You can have individuals and certain trusts as shareholders.
- You can't have partnerships and corporations as shareholders.
- You can't have nonresident aliens as shareholders.
How to Open a Bank Account for Your Business
Before opening a bank account, apply with the Internal Revenue Service (IRS) for a federal tax identification number, which is also known as Employer Identification Number (EIN). An EIN is like a Social Security Number for your business. You can apply for it by submitting an application in IRS Form SS-4. You can also apply for it online through the IRS website.
After you receive the EIN, you can visit a bank to open your company's bank account.
Choosing a Bank for Your Business
You should choose a bank depending upon the nature and financial needs of your business. If your business requires doing banking transactions at different places, you may want to consider a bank with a large network of branches. Similarly, if you travel a lot, you may need a bank that has ATMs across the country. On the other hand, for a local business, you may want to go with a community bank to get monetary benefits like a waiver of certain charges for the first year.
It's important to consider the transaction charges and fees while choosing a bank. Ask your bank representative the following questions:
- How much will each banking transaction cost you?
- How much balance do you need to maintain in your bank account?
- How much interest will you get on your bank balance?
- Does the bank offer any insurance policy on a certain percentage of your money?
- Can you upgrade your account without any penalty?
- Does the bank offer business loans and overdrafts at attractive rates?
If you withhold taxes, you will have to maintain a separate account to deposit the amount of withheld taxes. This is necessary if you collect sales tax from your customers or withhold taxes from your employees' paychecks. In such situations, you may want to find banks that offer a package deal for opening multiple accounts.
Choosing a Merchant Services Provider
If you plan on accepting payments online or through credit cards, you will also need to set up a merchant account with a financial institution or a merchant services provider. This arrangement will allow you to sell your goods and services online and let the customers pay with credit cards.
When a customer makes a payment, the funds first go into a holding account set up with your merchant account provider. The funds are then transferred from the holding account into your business's checking account.
Offering the convenience of making payments through a credit card substantially increases your sales potential. However, there are certain costs associated with a merchant account. You may have to pay a start-up fee ranging between $50 and $200 in addition to monthly fees and transaction fees.
You can either go for a traditional merchant account or an online merchant account:
- Traditional merchant accounts use a card swiping machine to authorize credit card payments.
- Online merchant accounts let you process credit card transactions over the Internet.
You should compare different merchant account services before choosing the best one for your business. Go through online reviews and talk to other business owners to get their feedback. Find out whether there are any hidden charges, minimum monthly fees, and termination fees. Additionally, you should also consider the quality and price of the hardware and software being offered.
If you need help with S corporation bank account, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.