Tax Information for New Businesses
Starting a new business? There are so many details which you need to look at that I've broken them up into separate pages. I'd like for this to be a very comprehensive source, so if you are looking for something that isn't here, please send me an email.
California has a great web site, CalGold, that lists in one place all of the different agencies your business needs to contact. I also like the federal web site, which has links to information on low-interest business loans and information for minority- and women-owned businesses.
1. If you take no special steps, your business is a sole proprietorship (1 owner) or a partnership (2 or more owners.) For tax purposes, a husband and wife can be considered as one owner. A corporation or LLC might have advantages. For many people, the choice narrows down to an S corporation versus an LLC.
2. Whenever there is more than one owner, I strongly recommend a written operating agreement. How will profits & losses be divided? When will cash be disbursed? What if the company needs more money? What if an owner is disabled or dies? What if an owner wants to leave the business? What are the long-term goals for the company? You can go the do-it-yourself route with a Nolo Press guide, or use an experienced business attorney.
3. Your business needs a bookkeeping system to track the money it takes in and the money it disburses. If you bill your customers, you will need to print invoices and keep track of your accounts receivable. Almost everyone uses QuickBooks. I know that bookkeeping seems straightforward and you should be able to set up your system yourself, but I believe that you will have a better, easier system if you have support. Intuit, the makers of QuickBooks, maintains a list of support options, including classes and Certified QuickBook Pros, or contact Gloria Lynch Bookkeeping Service in San Carlos.
4. In order to open a bank account for the new business, it will need a federal tax i.d. number (FEIN.) It's free and pretty simple to fill out the Form SS-4 at IRS.gov. Then call the phone number included in the instructions, and the agent will give you the i.d. number immediately on the phone.
5. If you are going to do business under a name that's different than your name, you need to register the fictitious business name with your county clerk. You don't need to do this if you are forming a corporation or LLC.
6. You need a business license from the city where your business is located or operating. In Burlingame and some other cities, a separate, additional license is required if your business is operated from your home. It's important to have all of the required licenses in order to protect your business's legal rights, as well as to avoid penalties later.
Specific information for San Mateo
Specific information for Burlingame
Specific information for Foster City
7. Will you be selling product and collecting sales tax? If you are in California, you need to register with the State Board of Equalization. Their site has lots of information about how much sales tax to collect and how & when to remit it to the state. Also, all businesses with annual sales of more than $100,000 must register with the BOE and file annual use tax returns. This applies to all types of businesses, even ones which sell only services and no physical product.
8. Will you have employees?
And, of course, I recommend that you meet with an experienced CPA and discuss:
- How will the company impact your personal tax returns?
- When are the company's tax returns due?
- How much tax will the company owe, and when must it be paid?
- If the company's expenses are more than its sales (a "net operating loss") how is that treated for tax purposes?
- Other tax questions you may have.
M Bess Kane, CPA
July, 2011
Burlingame - San Mateo - Foster City CPA Since '88
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Answers to many of your tax questions can be found here
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