Whether you’ve been running your own business for a few years or just starting up a new one this year, you’re going to have some additional responsibilities beyond setting up a flashy website. Having started several businesses over the past 25 years, I’ve learned a thing or two about starting up a successful business.
I’m sorry to say, running your own business means additional paperwork and administration, especially keeping careful track of income and expenses. You may also need to do legal filings and obtain proper licensing. But in the end, its usually well worth the effort to be your own boss and create a business of your own making.
Here are a few tips to keep in mind when starting a new business.
Choose the correct business structure for your business
There are several forms of business organization and each one has its own set of requirements, advantages and disadvantages. In general, this list goes from simple to more complex forms.
· A sole proprietorship is common for new businesses. It is an unincorporated business that is owned by an individual.
· A partnership is also an unincorporated business but it is owned by two or more people.
· A corporation (C corp) is a separate entity that is owned by shareholders.
· An S corporation (S corp) is a corporation that elects to pass income, losses, deductions, and credits through to shareholders.
· A limited liability company (LLC) is a business organized under state law that, similar to an S corp, allows the pass through of income, losses, deductions, and credits through to shareholders.
Apply for an employer identification number or EIN
Except for sole proprietors, most businesses will need their own EIN. Not only will you use it on IRS tax forms but, many other aspects of doing business will require an EIN. It helps to identify your business. You can apply for an EIN here: https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online
Open a business checking account
One of the big mistakes we often see with new businesses is the failure of a business owner to treat their business as a business. When you start a business, it is a completely different activity compared to your personal finances. As such, your business should have its own set of books, records and bank accounts. Having a separate bank account is one of the first steps to take when organizing your business. At the end of the year, it can help you clearly identify your business income and expenses. Business bank accounts often come with access to additional services such as integration with accounting software such as QuickBooks or payroll services, which can be especially helpful in saving you time.
Have employees complete required forms
Form I-9 is required to permit you to verify that the employee is legally eligible to work in the US. Form W-4 specifies how much tax withholding the employee needs. You may also need to perform background checks or have employees sign ethics and employment agreements.
Pay your taxes quarterly
As an employer, you will be responsible for paying FICA taxes which are comprised of Social Security and Medicare taxes that all employees and employers must pay. The employer portion is 7.65% and the employee also pays 7.65%. The employer is responsible for withholding this tax from the employee’s pay and remitting it along with the employer portion to the US Treasury. The employer is also responsible for withholding federal (and state and local, if applicable) income taxes. An easy way to pay your federal taxes is online: https://www.irs.gov/payments
Failure to pay your estimated quarterly income taxes, not paying enough each quarter, or not paying on time can lead to penalties and interest charges. Who needs that when you work hard in your business to make a profit. Besides, it may help you budget business expenses better by avoiding a large tax bill at tax time.
Find out about state reporting
In Massachusetts and many other states, you’ll need to register your business and possibly obtain licenses or permits to do business in the state. For Massachusetts business owners, a good starting point is https://www.mass.gov/guides/starting-a-new-business Most other states also offer information about starting a business and the requirements.
There are, of course, many other things to consider in starting up a new business including creating a business plan and making sure you have the financial and other resources to launch and maintain your business.
If you have questions about how to start a new business, give me a call. I’m here to help. You can schedule a quick call with me by clicking HERE.
Lyman H. Jackson
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Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. FPS provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client after entering into an advisory relationship. Information herein includes opinions and forward-looking statements that may not come to pass. Information is derived from sources believed to be reliable. Information is at a point in time and subject to change without notice. Such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.