Joint Account for Common Earnings
I've started a tutoring group with two of my peers; the three of us are minors in the state of Ohio. We charge a modest fee and generate approximately ,000 in revenue per month.
We plan on charging our clients by check and depositing the money into a shared bank account.
However, having little background in financial matters, I wasn't sure how to go about setting up this account. Based on my research, I suspect one option would be to set up a partnership or LLC. However, to do so seems to require extensive paperwork and would be a hassle come tax-time -- quite a bit of work for a simple tutoring group.
What is an appropriate approach for this situation? I imagine it's fairly common among self-employed high school students, but I didn't find a solution in my research.
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Do not use a shared bank account. One of you can cash/deposit the check in your personal account and then either pay the others in the group cash or write them a check. You open yourself up to many, many problems sharing a bank account and/or money. Treat it like a business as far as income goes, but I would not recommend any type of formal business, LLC, partnership, sole proprietorship, etc.
For federal taxes, you just keep track of how much "you" personally are paid and report that at the end of the year as income, most likely on a 1040EZ 1040SE, along with any other income you have.
Short Answer:
Go to the bank and ask them about your options for opening a business account.
Talk to an attorney about the paperwork and company structure and taxes.
Long Answer:
You and your buddies jointly own an unincorporated business. This is called a partnership. Yes, there is paperwork involved in doing it properly and the fact that you guys are minors might complicate that paperwork a little bit.
In terms of what type of account to open: A business account!
Running a business through a personal account (joint or otherwise) is a sure way to get that account shut down.
Your bank will want to know the structure of the business, and will require documentation to support that. For a partnership, they will probably want a copy of the partnership agreement. For an LLC, they'll probably want a copy of the filing with Ohio Secretary of State as well as the operating agreement etc.
That said, pop into a local bank and ask a business banker directly what you should do. They deal with new businesses all the time, and would probably be best qualified to help you figure out the bank account aspect of it.
Regarding business structure... this really impacts a lot more than just the type of bank account to open and how you file your taxes. It is something you guys should really discuss with an attorney.
What happens if down the road one of you quits? What happens if you want to bring in a new partner later? What if there is a disagreement about something? These are all things that the attorney can help you address ahead of time - which is a heck of a lot easier (and cheaper) than trying to figure it out later.
You're brining in enough that you should certainly be able to buy a couple hours of a lawyer's time. Getting the formation stuff right could save all of you a lot of money and heartache later.
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