[To skip the reading and check out Aaron’s tips, you can head over here.]
A few weeks back, I wrote about my desire to legitimize my business by registering it with the state of New York and opening a separate business bank account.
This week, I actually went ahead and did those things! Today, I am pleased to announce that my sole proprietorship is certified to do business in the county of Queens, New York and that I now have a better method of setting aside business expenses than just dumping them into my personal savings account.
Here’s how I did it:
In New York, sole proprietors hoping to register their businesses must do so with their local county clerk’s office rather than with a statewide agency (you can find out your state’s requirements here).
Of course, before I could register my business with the county clerk’s office, I first needed to obtain and fill out a blank business certificate, which goes by the name of Form x201 in New York City. While you might assume that you would be able buy the certificate at or near the courthouse where you are supposed to file it, this was sadly not the case.
In fact, the only place you can obtain a business certificate form in New York City is at one of 15 stationary stores that sell legal forms printed by a company called Blumberg. The closest one to the Queens County Clerk’s office is in Forest Hills, about a mile and a half away. While you can purchase the form online, you can only buy a package of forms for $44.40. Go figure that the same city that brought you “outer borough subway service on the weekends” would add unnecessary complications to an otherwise straightforward process.
Fortunately when I visited the Forest Hills stationery store, Copies ‘N More, on a cold, rainy Monday morning, I was able to purchase the form for a cool $3.
Next, it was on to the Queens County Clerk’s Office, a short ride on the F train from Copies ‘ N More. The building includes a big room with lots of printers and government employees that you have to visit in order to file legal paperwork. I filled out my form and decided to give my business the fairly boring name of “Aaron Taube.” While many people use the business certificate to give themselves a professional business name like “AT Writing Services,” I wanted to keep things simple for my existing customers and just use my real name.
After the form was filled out, I was able to get it notarized at the notary desk inside the big room with all the printers. Then, I submitted it to a teller in exchange for a $120 fee, and a few short minutes later, I was the recipient of my very own business certificate, authorizing my sole proprietorship to do business in Queens under the name of “Aaron Taube.”
Once you have your “doing business as” certificate, you have two new tasks that were previously unavailable to you: you can procure an Employee Identification Number (EIN) from the Internal Revenue Service and you can open up a business bank account.
If you’re unfamiliar, an EIN is a nine-digit number that the IRS gives to your business in order to identify it come tax time (you can apply for one here). It’s basically like a personal Social Security number, but for your business. You’re required to get one if you intend to hire employees or to open a solo 401(k) plan, but the EIN can also be helpful to freelancers who are not planning to do either of these things.
For instance, you might want an EIN so you can put it on your W-9 forms instead of providing new customers with your Social Security number. Having an EIN might also reassure your clients that you know you are an independent contractor and will not attempt to claim that you have been wrongfully denied employee benefits.
I chose not to get an EIN because I am comfortable giving my social security number to new clients and because I am not worried about anyone thinking I will sue them for employment benefits (blogging publicly about being a freelancer would probably make this sort of lawsuit difficult for me to win, anyway).
A business bank account, on the other hand, was something I really wanted. For starters, running all of my business earnings through a separate bank account will help create a narrative for the IRS that my sole proprietorship is a bonafide endeavor, thus giving more credibility to the expenses I mark off as tax deductions.
Further, having a separate account will help me keep better track of my business expenses. Instead of having to go back through my checking account to remember which of my purchases were for business items, I can rest easy knowing that everything I put on my business debit card went toward something I can deduct from my taxes.
When you’re thinking about opening a business checking account, there are basically three big things you need to consider: how much money you plan to keep in your account, whether you’ll want the bank to loan you money, and the relative convenience of each bank you are considering.
The most important thing is really whether you want a bank to loan you money. If you do, you’ll want to do due diligence shopping around for one that might be willing to give you a credit line at a low interest rate. Otherwise, most major banks are fairly similar in that they offer checking accounts that are free so long as you keep a certain amount of money in them.
Since my business doesn’t require the sort of investments that would necessitate a loan, I chose to open an account with Chase on the grounds that the bank has a location close to my apartment and I already have a Chase credit card.
The account I opened is free so long as I keep a minimum daily balance of $1,500 — otherwise, it’s $10 a month — and I am allowed to make 200 transactions and $7,500 in cash deposits each month. Since I don’t expect to be paid 200 times a month and none of my customers pay cash, I don’t foresee either of these limits to be much of a problem. Chase offers other types of checking accounts with higher transaction and cash deposit limits, but you need to keep at least $50,000 in your account at all times in order for them to be free.
I also opened up a free business savings account to hold the money I am setting aside for taxes and applied for a business credit card so that I can get rewards points when I make business-related purchases (I’m currently in the market for a new smartphone). The whole process was pretty smooth and took about an hour from start to finish.
As a tip, once you’ve set up your own business checking account, you’ll want to log in online to set up an easy method of making transfers between your personal and business accounts. You should also give your new account and routing numbers to any clients that pay you via direct deposit, this way your money goes directly to your business account.
Once you’ve done that, you should be all set. Congratulations to us on our officially registered businesses and super professional business bank accounts!
*Written by Aaroun Taube on behalf of Benny*