Quarterly taxes & payment methods; business checking accounts

[Muk6202]

Hi! I officially started a sole-proprietorship this year and my spouse has W-2 income. Last year we used my spouse's W-4 to withhold more money to cover my business taxes. We still ended up short and incurred an IRS penalty. This year I wanted to try paying quarterly taxes, but missed the 5-day advanced registration deadline for paying 1st quarter taxes via the IRS's EFTPS system. So I used the IRS Direct Pay instead. My question is: as a business, should I officially register and use the EFPTS system, or can I continue to use the Direct Pay System?

And a second question: do we really need to set up a formal business checking account at a bank (where you show your business license etc) or is a separate personal checking account sufficient? I contributed toward a SEP IRA last year and my understanding is that *ideally* those contributions should be transferred from an official business account. Thank you so much!!!!

[Sean Enrolled Agent]

@Muk6202 , these are some great questions!

You can continue to use the IRS Direct Pay method to make your estimated tax payments. You will want to keep the records of these tax payments so that you can enter in the information regarding estimated tax payments when you file your 2023 tax return.
Feel free to view the following IRS website for more information: https://www.irs.gov/payments/direct-pay 

The IRS does want your business to have a separate business account. 

Sole proprietorships aren’t required to have a separate business bank account unless they trade using a fake DBA name  (doing business as). 

However, when you mix your business and personal fund, it could make organizing your finances challenging during tax time.  It may also make it difficult to prove that the funds are being used for business purposes if the IRS were to ask for more information.

[CLBHESQLLM]

@Muk6202, since you are operating your business as a sole proprietorship, I am assuming that you did not form an entity.  If that is the case, and you do not have an Federal Employer Identification Number (FEIN), there is no reason that you cannot use the Direct Pay system.  Regarding opening a business account, you may do that as a sole proprietorship, and should in order to segregate business activity from personal activity.

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