EIN and Business Checking Account?
Athens, AL · Member since 2017 · 62 posts · 12 votes
Good evening BP members. I am going to purchase my first single family investment property within the next few months. I have money in a couple of different personal accounts that I want to use to purchase properties. I want one account for this money, but when I checked with my bank (online) about a business checking/savings account, it said you need an EIN number or tax returns for the business, and proof of business to open the business account. I have none of this at the moment, since I haven't done a deal yet. Should I get an EIN and open the business account? How did you handle situations such as this? I know I can call the bank, but it's after hours and I am curious. Thanks in advance.
@Barry Cooley, here are the steps. Apologies it's a bit long... Alabama does thing a bit differently ;)
1. LLC Name. Search your desired LLC name to make sure it's unique and available to use. Here's the Alabama database search page: http://arc-sos.state.al.us/CGI/CORPNAME.MBR/INPUT. Your LLC name must end with LLC, L.L.C., or Limited Liability Company.
2. Name reservation. Alabama requires you to reserve the name before registering/forming your LLC. You can do this by mail, but it takes a few days. Online is nearly the same cost ($28) and it's an instant approval. Go here: https://www.alabamainteractive.org/sos/welcome.action > Name Reservation Menu > Name Reservation > click “Non-Subscriber” (at the bottom).
3. Registered Agent. Choose a Registered Agent for your LLC. A Registered Agent is a person or company who agrees to accept legal mail on behalf of your LLC in case your business gets sued. Your Registered Agent must have a street address in Alabama (PO Boxes are not allowed). You can list yourself, a friend, or a family member as the LLC's Registered Agent. You can also hire a professional Registered Agent (called a Commercial Registered Agent). Once you make this decision, you'll include this info in your Certificate of Formation.
4. Certificate of Formation. This can only be filed by mail. There is no online filing. Download form and complete 3 copies: http://sos.alabama.gov/sites/default/files/2017-03/sosdf-8.pdf. Send the Certificate of Formation, along with a cover letter (we've made one you can use here), Name Reservation approval, and filing fees to the probate judge's office located in the same county of your LLC. You'll need one check for $100 made payable to "Secretary of State" and one check made payable to "Probate Judge". There are 67 counties in Alabama, and probate judge fees range $50 - $65. You'll need to call your probate judge's office and ask what their "LLC recording fees" are. You can find all phone numbers here. You'll likely need a large envelope to send the following: 3 copies of Certificate of Formation, Name Reservation, 1 check for Secretary of State, and 1 check for Probate Judge. Do not mail the filing to the Secretary of State. Mail to the Probate Judge (ask for mailing address when you call). They'll record your LLC there (at the county), then forward your filing to the Secretary of State. Total turn-around/approval time will be 10-15 days.
5. LLC Operating Agreement. Sign an Operating Agreement, which states who the LLC owners (called members), how much they own, how profits are split, how taxes are paid, how the LLC is managed, and more.
6. Federal Tax ID Number (EIN). Wait for LLC approval from state, then apply for EIN with the IRS. Can all be done online in 10-15 minutes and it is free. Only available M-F, 7am-10pm. https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online
7. LLC bank account. Open an LLC checking account. Call around and shop rates. A lot of banks charge monthly maintenance fees on business accounts, but a few do not. Bring approved Certificate of Formation, Operating Agreement, EIN, and driver's license.
8. Annual Report. Unlike most states where the Annual Report is filed with the Secretary of State, in Alabama, the Annual Report is filed with the Department of Revenue. Within 2.5 months of your LLC being formed you need to file the Initial Business Privilege Tax Return (Form BPT-IN). Minimum fee is $100. Then every year (due by April 15th), you need to file the Business Privilege Tax Return (Form PPT). You have to include your federal tax return, Schedule BPT-NWI, and Form BPT-V. A minimum tax of $100 is due, but you may owe more depending on your federal taxable income and your net worth. I certainly recommend you get help from an accountant for this step as well as federal and any local taxes as well.
Hope that helps!
Hi Barry and welcome to BP!
I would recommend opening up a business account to segregate the rental income / deposits from your personal income. It also sounds like you're looking to establish a business to hold or run the property that isn't in your own name. To do so, you'll need to create the business (LLC, S Corp, DBA) and then apply to the IRS to get your EIN (which I believe can be done online these days). You don't need to have the deal done to do either of these activities.
-Christopher
Thanks Christopher. That was my thought also, to separate personal from business. So,do you think creating a legal entity, such as LLC, etc. is what they mean by proof of business? I wasn't planning on an LLC at this point, since I haven't made any money to protect yet, but would like to down the line at some point. Thanks for your help.
If you're not going to create a business entity or limited liability entity, just go find a local bank or credit union with an inexpensive low balance checking account and open it in your name with your ssn then move the money for investment into that account. If you want to have a cool name you file a fictitious name DBA registration with your state and the account can be named anything you want.... Scott L. d/b/a SCOTT'S AWESOME SF RENTALS. In Texas you can do it at the county clerk for $30. No EIN required unless you are going to hire employees, in which case you can just file an SS4 with IRS like you're supposed to do if you hire a live in maid or nanny.
That's what I'm trying to decide, whether to open a business account or another personal account. I know down the line I will want a business account, but not sure it's worth the trouble at this point. Thanks for your input.
@Barry Cooley To give you some insight on the flipping side because it seems like most of the people are saying for the rentals they do it.... for every flip that I purchase I create a separate LLC to purchase the property under .. 123 ABC ST LLC and then I make a separate account in order to keep all the expenses separate from everything else and the other properties that I have. I get separate checks and business debit cards as well for all the accounts as well, I find this to be the easiest way to organize everything and make life super easy at the end. It costs $126 to do each time.
I feel that this has tax benefits, liability benefits, and is way easier to manage.
Thanks Scott, that's another route I might possibly take.
Mateusz, is the $126 for the LLC or business account?
@Barry Cooley To create the LLC it's 126$, then once you make the LLC, you go to IRS website, register the company and get an EIN number... then you go to Wells or where ever you bank and then open an account. Order Checks and a debit card and only purchase stuff for that specific property with the card associated with that account.
Thanks Mateusz. The LLC isn't quiet as expensive as I thought it would be, so I may possibly go that route. Thanks for the information.
@Barry Cooley If you go to an attorney they charge you like 400-500$ to create an LLC... so just do it yourself and save the cost.
@mateusz Prawdzik
I believe I will be doing it myself then. Thank you.
Hey @Barry Cooley, is the property located in Alabama? An Alabama LLC will run you about $183 to setup. It breaks down as $100 to the state, $50-$65 to the probate judge (depends on the county you're in), and $28 for the required name reservation. After your LLC is approved, you'll get the the EIN from the IRS (free) and open the business checking account. Let me know if AL is the state where you're investing and I'll reply with more detailed steps. Hope that helps.
Matt, yes, the location I will be investing will be in Alabama. More detailed steps would be greatly appreciated. Thank you so much!
@Account Closed
Thanks for the input, Dylan. Business credit cards is another area I haven't given much thought to, but may be something for me to think about. Thanks for the info!
@Barry Cooley to create your LLC with EIN takes you 30 min - it's all online. $99 in Ohio but since it's different for Alabama, it might take few more. EIN needed not just if you hire employees but to open checking account as well. Usually debit card is coming along with such an account unless it's a special account (trust, escrow etc)
@Account Closed could you elaborate on the business credit building some more, please? I get DUNN number, net 30day credit line, but still have to put my SSN on the line for business credit cards.
Banks don't report on my SSN - only EIN but I still have personally guarantee them.
I'd really like to know how to do it more intelligent way?
@Barry Cooley If you're in the business for the long term, I'd get an EIN number and separate account for the business. As @Christopher Brainard mentioned, you'll probably need to set up a separate entity as well. Best to separate personal from business. Hope that helps!
Irina, Thank you for the information. I have decided I am going to apply for LLC online.
Rachel,
I certainly hope that I'm in for the long haul. Thank you very much for your input.
@Barry Cooley, here are the steps. Apologies it's a bit long... Alabama does thing a bit differently ;)
1. LLC Name. Search your desired LLC name to make sure it's unique and available to use. Here's the Alabama database search page: http://arc-sos.state.al.us/CGI/CORPNAME.MBR/INPUT. Your LLC name must end with LLC, L.L.C., or Limited Liability Company.
2. Name reservation. Alabama requires you to reserve the name before registering/forming your LLC. You can do this by mail, but it takes a few days. Online is nearly the same cost ($28) and it's an instant approval. Go here: https://www.alabamainteractive.org/sos/welcome.action > Name Reservation Menu > Name Reservation > click “Non-Subscriber” (at the bottom).
3. Registered Agent. Choose a Registered Agent for your LLC. A Registered Agent is a person or company who agrees to accept legal mail on behalf of your LLC in case your business gets sued. Your Registered Agent must have a street address in Alabama (PO Boxes are not allowed). You can list yourself, a friend, or a family member as the LLC's Registered Agent. You can also hire a professional Registered Agent (called a Commercial Registered Agent). Once you make this decision, you'll include this info in your Certificate of Formation.
4. Certificate of Formation. This can only be filed by mail. There is no online filing. Download form and complete 3 copies: http://sos.alabama.gov/sites/default/files/2017-03/sosdf-8.pdf. Send the Certificate of Formation, along with a cover letter (we've made one you can use here), Name Reservation approval, and filing fees to the probate judge's office located in the same county of your LLC. You'll need one check for $100 made payable to "Secretary of State" and one check made payable to "Probate Judge". There are 67 counties in Alabama, and probate judge fees range $50 - $65. You'll need to call your probate judge's office and ask what their "LLC recording fees" are. You can find all phone numbers here. You'll likely need a large envelope to send the following: 3 copies of Certificate of Formation, Name Reservation, 1 check for Secretary of State, and 1 check for Probate Judge. Do not mail the filing to the Secretary of State. Mail to the Probate Judge (ask for mailing address when you call). They'll record your LLC there (at the county), then forward your filing to the Secretary of State. Total turn-around/approval time will be 10-15 days.
5. LLC Operating Agreement. Sign an Operating Agreement, which states who the LLC owners (called members), how much they own, how profits are split, how taxes are paid, how the LLC is managed, and more.
6. Federal Tax ID Number (EIN). Wait for LLC approval from state, then apply for EIN with the IRS. Can all be done online in 10-15 minutes and it is free. Only available M-F, 7am-10pm. https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online
7. LLC bank account. Open an LLC checking account. Call around and shop rates. A lot of banks charge monthly maintenance fees on business accounts, but a few do not. Bring approved Certificate of Formation, Operating Agreement, EIN, and driver's license.
8. Annual Report. Unlike most states where the Annual Report is filed with the Secretary of State, in Alabama, the Annual Report is filed with the Department of Revenue. Within 2.5 months of your LLC being formed you need to file the Initial Business Privilege Tax Return (Form BPT-IN). Minimum fee is $100. Then every year (due by April 15th), you need to file the Business Privilege Tax Return (Form PPT). You have to include your federal tax return, Schedule BPT-NWI, and Form BPT-V. A minimum tax of $100 is due, but you may owe more depending on your federal taxable income and your net worth. I certainly recommend you get help from an accountant for this step as well as federal and any local taxes as well.
Hope that helps!
Wow Matt, you are the bomb! Thank you so much for this information!
Colleen, thank you for this information. You have all been very helpful!
Matt, when reserving a business name, do you add the LLC as part of the name on the request?