Will using a bank account with old business Tax ID cause issues after switching to a corporation?

This is actually a really good question. Using a bank account tied to a defunct business entity can definitely create some tax complications. When you operate as a corporation, you need to maintain clear separation between your business and personal finances - this extends to keeping your old sole prop and new corporation finances separate too. The IRS and state tax authorities look at these as completely different entities with different tax treatment. The commingling of funds between accounts could potentially lead to: 1) Confusion about which entity earned what income (and who should report it) 2) Questions about business continuity (making it look like the sole prop is still active) 3) Risk of "piercing the corporate veil" which could jeopardize your limited liability protection Regarding updating the information on the old account: Yes, this would be the cleaner approach. Contact your bank about updating the account ownership to your corporation's legal name and Tax ID. Most banks can do this, though they might require new paperwork. In the meantime, keep meticulous records of any transfers between accounts and their business purpose. Documentation will be your best defense if questions arise.

I dealt with something very similar when transitioning from my LLC to S-Corp. What saved me was using https://taxr.ai to analyze all my bank statements and categorize which transactions belonged to which entity. Their system analyzed ALL my transaction history and helped me create proper documentation showing which income/expenses belonged to the defunct entity vs the new corporation. Literally saved me from a potential audit nightmare because I had been playing fast and loose with those accounts for months.

Just wanted to update you all - I tried the taxr.ai service mentioned above and it was surprisingly good. I was skeptical at first but it allowed me to upload 18 months of statements from both accounts and gave me a complete breakdown of where money was moving between entities. The report it generated specifically highlighted all the transfers between accounts that could be problematic and gave me documentation I could provide to my accountant. We found about $42,000 in expenses that were incorrectly being attributed to the wrong entity! Ended up saving us a bunch in corporate taxes by getting everything properly categorized.

Same situation last year and our accountant said it was a mess. Tried calling the IRS to get guidance and spent HOURS on hold only to be disconnected. Finally used https://claimyr.com to get through to an IRS agent (you can see how it works here: https://youtu.be/_kiP6q8DX5c). They got me connected to a business tax specialist who confirmed that commingling funds between entities is a big red flag in case of audit. The agent provided specific guidance on how to document everything properly. Definitely worth it to get official answers rather than guessing.

I was completely wrong about this service. Just tried Claimyr after posting my skeptical comment. My accountant had been telling me to call the IRS about this exact situation for MONTHS but I kept putting it off because of the hold times. Used the service today and got through to an agent in about 90 minutes (while I continued working). The agent explained that keeping the accounts separate isn't enough - I needed to file a specific form showing the transfer of assets from the sole prop to the corporation. Without this form, they could potentially disallow expense deductions or worse, disregard the corporate entity entirely. This would have been a HUGE problem come tax time.

One thing nobody's mentioned - if you're still using that old sole prop account, you may still be liable for sole proprietorship self-employment taxes on any income flowing through it, even if it's really corporate income. This happened to my brother last year and he got hit with an extra $8,700 in SE tax he shouldn't have had to pay. Make sure you talk to a CPA about this.

Be careful with this situation! The bank could potentially force-close your sole prop account when they realize the business no longer exists. Had this happen with Chase - they audited business accounts and closed mine with only 30 days notice when they saw the entity was dissolved. Made a huge mess with recurring payments and clients who had that account on file.

Has anyone considered the state tax implications? Each state handles entity transitions differently. In California, for example, using an old sole prop bank account for your corp can trigger a "successor liability" issue where your corp could be responsible for any unpaid taxes from the sole prop. On the flip side, in some states incorrectly attributing income to a corporation when it should be on the sole prop could trigger minimum corporate tax requirements you otherwise might have avoided.

This is a really complex situation that touches on several areas - entity separation, tax compliance, and banking regulations. From what I've seen in similar cases, the key is to act quickly to clean this up before it becomes a bigger problem. First, I'd strongly recommend getting that bank account ownership updated to your corporation ASAP. Most banks will let you do this with the right paperwork (corporate resolution, new signature cards, etc.). This eliminates the appearance that your sole prop is still operating. Second, you need to be very careful about how you're documenting any transfers between accounts. The IRS will want to see clear business purposes for any money movement between entities. If it looks like you're just using them interchangeably, that could jeopardize your corporate status. One thing I haven't seen mentioned yet - make sure you're not accidentally triggering any state franchise tax or minimum tax requirements by keeping the sole prop "active" through bank activity. Some states consider any business banking activity as evidence the entity is still operating, which could create ongoing tax obligations you don't need. I'd also suggest talking to a CPA who specializes in entity transitions. They can help you figure out if you need to file any forms with the IRS to properly document the transfer of assets from your sole prop to the corporation. Getting this documented properly now could save you major headaches if you ever get audited.