The federal and state and local governments have requirements and the regulations of doing business in the U.S. Obtaining the information and necessary rules is important to prevent the risk of penalties, interest and to reduce the risk of failure due to noncompliance.
To start a business, one only has to start doing business
Under these terms
the person would operate under their own social security number
File a form schedule C (business tax return form)
This schedule is then attached to the individual Federal Form 1040
The person will be responsible to pay what is called self-employment tax (SE) on the net profit of the business. This will be paid on the individual’s Federal Form 1040.
It is important that individuals going into business understand their legal and tax obligations.
For federal tax issues go to IRS Self Employed Individual Tax Center
If the person does not want to do business as an individual, they can organize themselves into a legal entity.
The choices are:
Limited Liability Company (LLC)
Partnership (if two or more individuals)
Can elect to be taxed as an S-Corporation
Go to the State registration website. It could be called the Secretary of State or the Department of Revenue or an independent site. One can search their state to find the organization web site. It is important that it is understood that an entity is formed on the state level.
If an individual chooses to register as a multi member LLC, partnership, or corporation
They need to develop an operational agreement among the members, partners or stockholders. This is very important to identify the:
Capital ratio of sharing
Profit & Loss ratio sharing
Once the organization is identified and registered for, the organization needs to apply for an Employee Identification number (EIN).
Understand the rules of operation for the entity that was chosen, This can be accomplished by consulting a professional (CPA or Attorney)
EIN is required of all the entities except the individual or “disregarded” entity. The exception is if the individual decides to have employees. If so they then must have an EIN.
Employee Identification Numbers are issued for the purpose of tax administration.
This can be done on-line at www.irs.gov or Taxpayers can obtain an EIN by calling the Business & Specialty Tax Line at (800) 829-4933 or by fax or mail by filling out federal form SS-4.
If your principal business, office or agency or legal residence in the case of an individual, is located in:
Mail or Fax Form SS-4 to:
One of the 50 states or the District of Columbia
Internal Revenue Service Attn: EIN Operation Cincinnati, OH 45999Fax: 859-669-5760
If you have no legal residence, principal place of business, or principal office or agency in any state
Internal Revenue Service Attn: EIN International Operation Cincinnati, OH 45999Fax: 859-669-5987
After the EIN is obtained-or if the individual does not apply for an EIN because they choose not to as an individual doing business, they should establish accounts for the business to operate under. These include but not limited to:
Operating bank account
Credit and/or debit card under the business name and EIN
If employees are hired, have each employee fill out an:
IRS formW-4 (Employee’s Allowance certificate)
Purpose of this form is for the employee to notify the employer of their filing and exemption status.
Go to the IRS site
USIS form I-9 (U.S. Citizenship and Immigration Services)
The purpose of this form is to confirm the employee has the legal right to work in the U.S. A photo I.D. is required to be attached. This can be an authorized government I.D., a driver’s license or a passport.
Click here to access the I-9 form
Federal forms required to file:
Annual tax return
Individual Form 1040 (due 15th day of the 4th month of year end)
Partnership Form 1065 (due 15th day of the 4th month of year end)
C-Corporation Form 1120 (due 15th day of the 3rd month of year end)
S-Corporation Form 1120S (due 15th day of the 3rd month of year end)
The taxing entity may have to file quarterly estimated payments and returns.
See the IRS website for the appropriate federal estimated tax forms and dates of filing.
Employers must file employee payroll reports
IRS Form 941 (reconciliation of federal payroll taxes)
See instruction for mailing address
IRS Form 940 (reconciliation of federal unemployment taxes)
See instructions to the form 940
W-2 (employee earnings report)
Click here for form W-2
Click here for instructions to the Form W-2 and W-3
W-3 (Annual employer filing of employee earnings)
Click here for the form W-3
Click here for filing and mailing instructions
All federal taxes payable to the IRS must be paid through the EFTPS system
How to obtain access to the EFTPS
To enroll, or for more information to EFTPS Customer Service to request an enrollment form:
1-800-733-4829 (TDD Hearing-Impaired)
Go to the EFTPS IRS website
Vendors and independent contractors:
Obtain a Federal Form W-9 (Request for Taxpayer Identification Number and Certification)
Click to download the W-9
The purpose is to have the contractor provide tax information so that a 1099-Misc (Miscellaneous income form) can be sent to both the vendor and the IRS.
The company is required to file this form for all payments made to the vendors or contractors (some exceptions may apply) that are paid during the year
it is important to understand the rules, regulations and requirements of the use of independent contractor’s vs. employees.
See the IRS descriptions at the IRS independent contractor site.
State requirements: Each state has their own requirements for filing reports and taxes:
State unemployment taxes and filing for employees
State workers’ compensation for filing and payment for employees
Entity annual filing and reporting fees