Small businesses are the building blocks to our country’s economy and growth. With the millennial generation, startups are blossoming all over with wonderful new innovations and style. You would think the government would be as supportive and make it easy, but unfortunately you’d be wrong.
If you plan on starting a small business or startup company, it is important to keep in mind the federal, state and local tax requirements. There is an abundance of laws and regulations to comply with and they vary depending on what industry you are in and where.
Here are some tips starting from the roots to keep in mind and ensure that new business blossoms seamlessly.
First step is to choose the type of organization for your new business (ie, partnerships, LLC, S-Corp, C-Corp, etc.). Limited Liability Companies are the newest form of entity – but is this the right form for your business? The short answer is LLC’s or S-Corp’s will provide you with some protection from the liabilities of your new company (such as a lawsuit) and they may have certain tax advantages. It is important to consult a tax professional or attorney for details and assistance. Choosing an organizational type is important and will determine what federal and state income forms you will file.
Payroll and Taxes
Any salary you receive requires you to pay personal taxes (federal and state). Your new company will be required to file both federal and state withholding taxes every year. These can be complex matters because you have to take income tax, Federal Unemployment Tax (FUTA) and Federal Insurance Contributions (FICA) out of paychecks and then have the employer match the FICA withholding. It is recommended to use a payroll service as they will do this for you (for a fee). QuickBooks is used to compute these calculations as well, although you will need to use a tax professional to set this up correctly and use them to answer your questions as they come up (they will). If your business earns enough, you may have to file quarterly withholdings or there is a risk of penalty at the end of the year.
Other Taxes and Fees
Sales and Use tax is another important regulation to be aware of, but can be confusing to set up. If you sell a product rather than a service, you’ll have to pay sales tax. It may be unclear where the line between selling a product or a service is drawn.
Depending on your state’s regulations you may need to register your business and be required to pay an annual license fee. The city in which you set up your business may also have some tax requirements.
Are you going to use cash or accrual method of accounting? Cash may be easier for startup companies but if you have enough inventory and income, the IRS may force the accrual method. Financial records for your business are another important set up to keep in mind. Are you going to use a computer program to keep track of income and expenses? There are many ways that technology today can help you save money, by integrating your data with an accounting professional.
Although this may be a little over-whelming at first, it gets easier! You can always out-source you accounting needs to leave the numbers to the professionals and focus on your passion. The financial backbone of a new company is number one priority, this needs to be strong in order to support the future of your new venture.
Starting a new entrepreneurial venture is very exciting, rewarding, and profitable. Seek out Allied Tax Advisory Group to advise you and help build the blocks of your dream business!