Checklist for starting a businessDocument Transcript
Checklist for Starting a Business – per IRS website changed a little<br />
What is your plan – have one
How do you want to take money from this business
When ready…apply for an EIN (Employer Identification Number) and state registrations
Once you have the business plan in place and ready to execute – apply online with Form SS-4
This filing can set off filing requirements so don’t file until you are ready
Select a business structure – use a lawyer and a CPA to pick the correct one
Sole Proprietorship (Schedule C on your personal Form 1040) – SE taxes OUCH!
Partnership – for 2 or more people (Form 1065) – partners receive guaranteed payments, not W-2 wages, SE taxes OUCH!
Corporations – double taxation (Form 1120)
S Corporation – favored, restrictions include one class of stock, only 100 shareholders, corporations, partnerships and nonresident aliens cannot be shareholders – tax free distributions when there is basis (no double taxation), (Form 1120S) individual shareholders pay the tax via passthrough
LLC – very common, needs to elect classification on Form 8332 (sole proprietor, S or C corp, or partnership)
Choose either a calendar year or fiscal tax year
Short tax year
Individuals are calendar years
Determine your accounting method
Cash method – report income/deduct expense when received or actually paid
Accrual method – report income/deduct expense when earned or incurred – regardless of when it is received or actually paid
Know your tax deadlines and don’t miss them
3/15 tax return due for corporations
4/15 tax return due for partnerships and personal returns
Extensions give you 6 more months to FILE – never an extension to pay what was due
Estimated taxes are:
4/15, 6/15, 9/15 and 12/15 for businesses
4/15, 6/15, 9/15 and 1/15/XX for individuals
File returns TIMELY to “start the clock” – statute of limitations is 3 years and forever for fraud
Employees or independent contractors
Understand the cost of employees – it costs more than their hourly rate or salary
ER has to match the SS and Medicare portion of their wages and is only the fiduciary to submit the payroll taxes TIMELY to the IRS and State
Quarterly/Yearly the ER has to pay unemployment taxes on their employee’s – high turnover increases this cost
Will you be required to maintain some health insurance for your employees?
Independent contractors are more favorable, but they can’t solely work for you – read Publication 1779 from the IRS
Behavioral Control – who tells you how to do it and trains you?
Financial Control – are all costs reimbursed? Do you incur a profit or loss?
Relationship to the Parties – employee benefits (insurance, PTO)
Have a written contract
The IRS wants you to be an employee because it means more revenue for them
GOOD RECORD KEEPING – it is ALL right here…success or hardship
Pick an accounting solution/software (Quickbooks/Peachtree…you get what you pay for)
It needs to be reliable
It needs to be available if other people need to access it
It needs to do all the basic accounting functions (debits=credits, Balance Sheet is perpetual)
It needs to be backed up in case of electronic failure or malfunction so it can be restored
It needs to be safeguarded
NOT doing this is risky and costs more money and headache in the long run
28 -30% of businesses declaring bankruptcy cite problems with their financials as their main reason/cause for filing – don’t let that happen to you
Keep copies of your expenses – the burden of proof falls on the taxpayer to substantiate their claims on their tax returns. KEEP YOUR RECORDS
FRAUD – things to look out for:
Desperate times call for desperate measures – even close friends and people you have known
People with opportunity and they justify their reason – PREVENT IT!
HOW – never give one person all of the power
If you have a bookkeeper, look over their shoulder or have someone else do it
The best thing you can do is have someone else reconcile the books/bank statements if you don’t do it yourself. This one simple action let’s that person know you will see everything. Look deeper into things that look out of place.
Fraudulent vendors – almost the same name, common address as person committing the fraud
Sign all checks yourself – a hassle but very effective
Have a relationship at your bank so someone else is looking out for you
Logmein.com, gotomypc.com – both are great tools to get the assistance you need