FNBT Accounting Basics for Small Business Owners

Launching a small business means getting your finances in order from day one. This guide walks new entrepreneurs through the essential steps, including registering their business in Illinois or Wisconsin, setting up business bank accounts, choosing the right accounting method, and understanding federal and state tax requirements. Learn how to separate personal and business finances, select a fiscal year, and streamline your operations with tools like ACH services and remote deposits. With the right setup, you’ll be prepared to manage your money wisely and grow with confidence.

Starting your own business requires much more than a great product or service and the skills to make it happen. Before you can dream about getting on the road to Easy Street, you’ll need to make sure that your finances don’t get lost along the way. We offer these accounting tips for small businesses because we want to help all our business customers succeed. We’ll start with the basics, such as getting a license, then take a deep dive into business money management, plus state and federal business taxes.

Register Your Business

Before opening a business banking account, you must register your business at the state and federal levels. Illinois, Wisconsin, and the IRS each have their own licensing and registration requirements. Additionally, your county or local government may have its own business license requirements.

How to Get a Business License in Illinois

If you operate a business in Illinois or have Illinois customers, you’ll need to register with the Illinois Department of Revenue, even if you’re a sole proprietor. You may need to register with the Illinois Department of Employment Security if you have employees. If you adopt a business name different from your own name, you’ll need to register with the Illinois Secretary of State. You might also need to obtain a business license from your county or local government.

How to Get a Business License in Wisconsin

In Wisconsin, you’ll need to register with the Wisconsin Department of Revenue if your business is a sole proprietorship, partnership, nonprofit, or a non-Wisconsin LLC or corporation. You’ll also need to register if your business is already registered with the Department of Financial Institutions, is applying for a motor fuel permit, or already holds one or more permits issued by the Department of Revenue.
If none of these situations apply to your business, you can use the Wisconsin One Stop Business Registration Portal to register your business with multiple state agencies: the Department of Financial Institutions, the Department of Revenue, and the Department of Workforce Development.

How to Get a Federal Employer Identification Number

If you operate your business as a sole proprietor and do business and file taxes under your name, you can use your Social Security number for your business.
If you hire employees, operate a partnership or corporation, pay sales and excise taxes, or oversee certain trusts, retirement plans, and estates, you’ll need an employer identification number (EIN) from the IRS. You should register your business at the state level before obtaining your EIN.

Set up Your Business Accounting Methods

Once you have your EIN and business licenses, it’s time to think about your commercial banking and accounting needs. You’ll need your EIN or Social Security number, whatever business licenses you’re required to have, your entity documents, and any ownership agreements.

Open Business Bank Accounts

It’s pretty much a given that every business will have a business checking account to receive funds and make payments. Even if you’re a sole proprietor, a business checking account is essential to running a small business.
Keeping your business and personal checking accounts separate makes it easier to differentiate your business expenses from your own, which can be especially helpful when filing income taxes.
A separate business checking account can give a favorable impression and help your credibility with potential customers. It can also provide business money management tools, such as cash management services, to help you efficiently handle your funds. This includes:
• Online banking & bill payments, with business mobile banking, makes it easy to manage your funds and make payments.
• Merchant services so that you can accept payments through credit and debit cards.
• Remote deposit capture that lets you scan and deposit checks without visiting a bank or ATM.
• Automated Clearing House (ACH) services helps improve a company’s cash management forecasting initiative by eliminating reconcilement processes associated with paper checks, making it a faster and safer way to make and receive payments.
• Fraud management tools that protect your business against fraudulent checks and suspicious ACH transactions.

Do You Need a Business Savings Account?

A business savings account is optional, but most of our business banking customers use them for the same reasons they have personal savings accounts. Having separate business savings and checking accounts makes it easier to manage your funds, and you can earn interest on your business savings deposits. You might use your business checking account to receive and make payments and to issue payroll, while using your savings account as an emergency fund to get you through a seasonal slump or cover a major purchase.

Choose an Accounting Method

Business accounting is about much more than income and expenses. Business accounting also plays an important role when filing your business income tax returns and figuring out deductions. The IRS requires businesses to use either the cash method or the accrual method. Whichever method you use is up to you.
Smaller businesses and sole proprietors typically use the cash method because it’s simple and offers an immediate accounting of all revenue and expenses. Larger businesses and corporations are more likely to use the accrual method, which is thought to provide a more accurate view of a company’s financial health by including accounts payable and accounts receivable in the same year transactions occurred.

The Accrual Method

With the accrual method, you report all your business income in the year it is earned, regardless of when you receive payment. Expenses are also accounted for and recorded in the year they are incurred, irrespective of when they are paid. If you signed a contract in late December 2025 but don’t receive payment until the following year, you will report that income on your 2025 tax returns. Expenses are treated the same way.

The Cash-based Accounting Method

With a cash-based accounting system, payments to your business are recorded according to the year they’re received, and your business expenses are attributed to the year in which they’re paid. One of the main benefits of a cash-based accounting method is that it’s a simple system where all your income and expenses are recorded as they happen. This method also makes it easy to know how much cash your business has at any given moment.

Choose Your Fiscal Year

For many small business owners, their fiscal year is the same as the calendar year and ends on Dec. 31. This offers a simple approach, plus your business tax returns and your personal tax returns will be due at the same time.
Of course, you don’t have to run your business based on the calendar year. The federal government’s fiscal year runs from Oct. 1 to Sept. 30. It was set up that way because each new legislative session starts in January, giving Congress time to put together a budget.
You might choose your fiscal year based on your busiest time of the year. For example, many retailers start their fiscal year at the end of their busiest season, when inventories are expected to be at their lowest, which makes it easier to account for them.

IRS Requirements for Business Fiscal Years

Whichever 12-month period you choose for your business, your business income tax returns will be due by the 15^th day of the fourth month after your fiscal year end. However, the IRS does have different rules for businesses with certain legal structures.
S corporations are required to use the calendar year as their fiscal year unless they can convince the IRS that they have a legitimate business reason for doing so. All C corporations, S corporations, and partnerships must file their tax returns on the 15th day of the third month following their fiscal year end.

Basic Accounting Methods for Small Businesses

Many accounting programs are available, and most small business owners use them for bookkeeping. While the right software can help you manage your business, there are certain elements of a basic accounting statement that you’ll need to keep track of.
Balance Sheet: A snapshot of your business's financial health on any given date. It’s comprised of assets, liabilities, and equity.
Assets: Your liquid assets are cash or could be easily converted to cash. Fixed assets are things like your building, inventory, and equipment. Many of these items will be accounted for based on their depreciation.
Liabilities: Current liabilities are near-term charges against your business, such as employee wages and accounts payable. Long-term liabilities are things like mortgages, business loans, and deferred taxes.
Equity: Your business assets minus its liabilities.
Income statement: Also known as profits. It’s your business income minus expenses.
Cash flow statement: Shows the payments your business receives, the buying and selling of assets, and financing activities (such as debt payments).

Tax Requirements for Small Businesses

While every small business owner knows they have to file tax returns and pay income taxes, there are other business taxes that you’ll need to be aware of.

The Self-Employment Tax

For most employees, their employer pays half of their Medicare and Social Security taxes, also known as FICA. If you’re a sole proprietor or self-employed and earn $400 or more in a year, you’ll have to pay these taxes yourself. For 2024, the first $168,600 of your income is subject to Social Security taxes. Your Medicare taxes are based on your entire income. FICA taxes are subject to change, but for 2024, the self-employment tax rate was 15.3% (12.4% for Social Security and 2.9% for Medicare).

Your Estimated Taxes

The IRS requires sole proprietors, partners, and S corporation shareholders to make estimated tax payments if they expect to owe $1,000 or more when they file their tax return, or $500 for corporations. You can use IRS form 1040-ES to estimate your payments and must make them on a quarterly basis.

The Employer (Payroll) Tax

If your business has employees, you’ll need to pay employer taxes and withhold them for your employees. These are also known as payroll taxes. These include:
Social Security taxes: 6.2% for employers and 6.2% for employees, up to the taxable earnings cap.
Medicare taxes: 1.45% for employees and 1.45% for the employer.
Federal unemployment taxes: Up to 6% for the employer, on the first $7,000 paid to the employee, although this also depends on how much each employer pays in state unemployment taxes.

Excise Taxes

Depending on your industry, you may have to pay federal excise taxes, which are levied against certain goods, services, and activities.

Business Taxes in Illinois

Businesses in Illinois must pay income taxes based on their corporate structure.
Subchapter S corporations and partnerships pay a replacement tax of 1.5%. They do not have to pay income taxes because their business income is passed on to the shareholders or partners, who include this in their federal and state income tax returns.
Corporations, other than S corporations, pay a 7% income tax and a 2.5% replacement tax.
Illinois businesses may have to pay state sales and use taxes. Most for-profit employers in Illinois must pay unemployment taxes for their employees, based on a complicated formula used by the state. Local governments may also charge their own sales taxes.

Business Taxes in Wisconsin

Wisconsin has a franchise tax and an income tax. Both taxes are 7.9%, and a business must pay one of them. The main difference is that federal taxes are subject to the franchise tax, not the income tax.
The franchise tax applies to domestic corporations formed under Wisconsin law, with nonexempt income, and foreign corporations doing business in Wisconsin. Businesses may also have to pay local income taxes.
The Wisconsin business income tax applies to foreign corporations that are not subject to the franchise tax, but own property in Wisconsin and whose business in Wisconsin is in foreign or interstate commerce. Corporations must make estimated franchise or income tax payments if their tax liability is $500 or more, unless they owe no tax from the previous year, and their Wisconsin net income will be less than $250,000 for the current year.
Businesses with employees will have to pay for Wisconsin’s unemployment insurance, with the rate determined by several factors. Businesses may have to pay sales taxes or use a tax of 5%. Some Wisconsin counties and municipalities also levy business taxes.

Open A Business Checking Account

If you need more small business accounting tips or want to open a business checking or business savings account, please contact our business banking team. You’ll discover how you can simplify your business finances with our cash management services and how we’re always here for you and your business. Each year, we like to hold annual reviews with our business customers to see how they’re doing and how we can help them succeed, including reminding them of the benefits available to them. For example, when tax season arrives, holders of our one and VIP business checking accounts can take advantage of free tax filing³ for both personal and federal business returns—one of the many benefits designed to make your banking experience even more rewarding.

¹ Subject to the terms and conditions detailed in the Guide to Benefits. ² Insurance products are: NOT A DEPOSIT. NOT FDIC-INSURED. NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY. NOT GUARANTEED BY THE BANK. ³ Requires additional activation to begin.
BaZing or Gentreo are not a law firm or a substitute for a law firm or an attorney’s advice.
 
All figures cited in this blog are from outside sources, including, but not limited to, official Wisconsin and Illinois government websites, and are subject to change. This content is provided for educational purposes only and is not legal or tax advice. Please consult a qualified tax or accounting professional for guidance on your situation.