When you start a new business
You need to make sure you comply with the numerous tax and information filing requirements imposed by the various governmental agencies. Failure to take proper procedures, meet a filing deadline or overlook an important registration can result in penalty assessments. There are usually several forms required to be filed at the federal, state and local levels. The number of forms required will depend on such factors as whether you will have employees, collect sales tax, require special permits and licenses for your industry, etc. I discuss only the most basic ones here. If you are starting a business or changing some aspect of your existing business, I strongly suggest you contact your CPA so as not to overlook an important notification filing. Depending on what type of business entity you organize as will also affect what you must register for.
Do you need a business license?
Well, it depends. For many businesses, it will be sufficient to just obtain a local business license in order to comply with the law. But, some businesses may first require you to obtain a specific state license or certification in order to be in compliance. To list all the different agencies of contact that might apply to your situation is beyond the scope of this article because there are simply so many of them. Therefore, I recommend that you contact your accountant for guidance.
Generally, most tax forms filed with the Internal Revenue Service will require the use of an Employer Identification Number or EIN. You can obtain this number by filing Form SS-4 with the IRS. If you need an EIN immediately, the IRS will issue you one over the phone but you must still complete and mail the Form SS-4 in order to validate the EIN number they assign to you. Generally, to avoid confusion, it is best to file for your EIN number as soon as possible.
If you will have employees, this information is also reported on the Form SS-4. Doing so initiates the mailing of federal payroll reporting forms automatically.
Regulations vary from state to state. Pennsylvania, for example, uses a multi-registration Form PA-100. Relevant sections of the form are completed to acquire state identification numbers, provide employee tax withholding and unemployment experience information, register to collect and submit sales tax, and obtain numerous special purpose licenses, etc.
For example, if you will be selling products or services which will be subject to state sales tax, then you must apply for a sales tax license number. If you will have employees, you must register to withhold and remit state taxes from the employees wages. You will also need to establish an unemployment compensation account as well as certify that you carry workman's compensation insurance.
Also, as I discussed in my article on choosing a name for your business, if your business will be named anything other than your own name, you must file a Fictitious Name Registration. In Pennsylvania, the Fictitious Name Act is intended to protect the public when they work with persons who carry on a business under an assumed name. It allows the public to find out who they are doing business with. So, for example, lets assume that John Smith operates a carpet cleaning business. If he names the business John Smith's Carpet Cleaner or Smith's Carpet Cleaning then he will not be subject to compliance under the Fictitious Name Act since the customer can clearly see by the name who they are dealing with. However, if the business is named "John's Carpet Cleaning" then he would need to register under the act since a first name only is not distinctive enough. Also, registration is required whenever words such as "company" or "& associates" are added to company name since they imply that there are other unidentified persons associated with the business. Fictitious name filings also require the advertisment of the name in two newspapers: one being that of general circulation in the county where the busienss is located and the other in a legal paper in the same county.
You also need to be aware of the Pennsylvania Employee Protection Laws if you have employees as you must make sure you are in compliance with a variety of laws and regulations.
These may differ widely depending on the municipality in which you will conduct business. Generally, to operate a business you must obtain a business license in both the city and county you are located. Applications and information can typically be obtained at the city hall and county clerk's office where your business is located. Depending on the entity form of your business, various components of income can be subject to local tax as well as business privilege tax.
As stated at the onset, although some registration filings are almost universal to all businesses, others are not and depend on numerous factors such as employees, your industry, your locality, etc. Therefore, professional counsel is strongly recommended during this phase of a new business start up to insure that nothing is overlooked.
Will your business have employees?
If so then even if you only hire one employee, you will become subject to an array of registration and filing requirements such as:
1. Obtain a federal employment identification number by filing IRS form SS-4. This was discussed above. This number will be required for the reporting of federal, social security, medicare and federal unemployment taxes.
2. Register with your state and local government for withholding taxes.
3. Register with your state's unemployment department for payment of unemployment compensation taxes. These taxes get remitted to your state's unemployment compensation fund and are used to provide short-term relief to workers who are laid off.
4. Setup a payoll system to withhold taxes and make the tax payments to IRS. You'll need to withhold a portion of each employee's income and deposit it with the IRS, and also make Social Security and Medicare tax payments to IRS.
5. Get worker's compensation insurance. You must have this coverage in place in case an employee suffers and on-the-job injury.
6. Prepare an injury and illness prevention plan. This is one of the requirements of the Occupational Safely and Health Administration (OSHA).
7. Post the required labor law notices in your workplace. For information on required federal posters, go to the Dept of Labor website at www.dol.gov. Use their online "Poster Advisor" to determine which posters you must display in the workplace. In addition, you must comply with your state department of labor's poster requirements A list of state department of labor is included on the federal Department of Labor's website.
8. Fill out Form I-9, Employment Eligibility Verification. U.S. Citizenship and Immigration Services requires employers to use this form to verify every employee they hire is eligible to work in the United States.
9. Have the employee fill out IRS Form W-4, Withholding Allowance Certificate. On this form, employees tell you how many allowances they are claiming for tax purposes, so that you can withhold the correct amount of tax from their paychecks.