Many business owners are unaware that incorporation requires corporate compliance. When you incorporate you become a legal entity. Becoming a legal entity requires registering with state and federal agencies. Federal agencies will require a Federal Tax Identification number. State agencies will require employment ID numbers. Registration with any state or federal entity will require different forms of upkeep to keep your corporation compliant.
State Corporate Compliance
When you incorporate, you register the name you want to use with the state. The state approves your entity and assigns a corporate identification number. Once registered, the state will require you to file an annual report. Annual reports are part of corporate compliance. Annual reports are intended to update the state on changes to your corporation. If an annual report is not filed, you may be subject to penalties.
If you have employees, the state will require you to pay payroll taxes. Keeping compliant with state regulations for operating a business will also require compliance in the following areas;
Workers Compensation insurance coverage in case employees get injured
Registration for a sales tax ID number if subject to sales tax
Registration for an employer ID number if subject to payroll taxes
OSHA requirements for workplace and jobsite safety
Registration with state entities for specialized industries such as law, accounting, construction and health care
Reporting of newly hired employees to state employment agencies
Obtain a business license or occupational permit from your local city or county allowing you to conduct business in that area
Paying W-2 employees the required minimum wage
File annual income tax return for corporation
Federal Corporate Compliance
The federal government will not require you to file an annual report. The federal government will require the following to keep your corporation compliant;
File annual income tax return for corporation
Registration for FEIN (Federal Employer Identification Number)
Maintain accurate and detailed records of expenses and income
File annual employment tax forms 1099’s and W-2’s
File quarterly and annual employer payroll tax returns
When you incorporate it is a great idea to research corporate compliance in your state. Part of many incorporation services is help and advice regarding corporate compliance. Avoid fees and penalties from late filings by understanding what your state and government require to maintain your corporate protections.
If you need help with incorporation don’t hesitate to call us at 1-800-572-4419 or email [email protected] to get a quote for incorporation services. Feel free to subscribe to our blog for more accounting, tax, bookkeeping and HR tips.
Over the next few posts we will discuss different corporate structures. Many wonder what corporate structure is right for them when owning a business. These posts will discuss each corporate structure available and when they should be utilized. In this post we will discuss Sole Proprietorship.
A Sole Proprietorship is not a legal entity as far as the state and federal government are concerned. This type of corporate structure is used often for businesses that are just beginning. If you have a side gig that earns you income. If you will only be working a small amount of hours on your business to start. If you aren’t quite sure what corporate structure you should use yet, you will probably use Sole Proprietorship.
Legalities of running a Sole Proprietorship
First you will probably want to register your business with the county you will conduct business in. This is called a DBA or “Doing Business As”. If you plan to conduct business in a name other than your own you will want to register the name you want to use. Registering your business name will enable you to operate using the business name you wish in your county.
As a Sole Proprietor you will be eligible to file a schedule C on your 1040 tax return. A schedule C is a schedule of business expenses that are deductible on your taxes. Not all expenses are tax deductible and some have certain regulations. You may also be eligible to write off vehicle expenses and business use of home.
A corporate veil is the legal protection operating a legally registered corporation provides. As a Sole Proprietor you do not have a corporate veil. If someone initiates legal action against you, your personal assets are unprotected. Only legally registered corporations offer protection of your personal assets.
If you are considering incorporation or need help with accounting or bookkeeping, please feel free to call us for a free consultation at 800-572-4419 or email [email protected]. Subscribe to our blog today for more bookkeeping, accounting and HR tips!
You may be wondering if it is time to take your small business to the next level. Maybe you’ve been self-employed and your business has grown. Maybe you secured funding for your business venture from investors. Maybe you’ve been freelancing and want to expand operations. Knowing when to incorporate can save a lot of headache and unnecessary expense.
Being a self-employed owner is often expensive. Paying for costs out of your pocket can add up. Maybe it seems like incorporation would save you money. It doesn’t. Incorporation often makes the cost of running a business go up. State filing fees can range from the 100’s to the 1000’s of dollars depending on your state. Incorporation also puts you on the radar with many state and federal agencies making you liable for taxes and corporate compliance.
Who is Liable?
This is a good question to ask if your business operations involve others. When you are self-employed and are the sole employee of your business you are responsible for only yourself. When you begin hiring employees, open a physical location or start taking on investors, you become liable for others involved in your business as well. When you incorporate you create an entity outside yourself that is liable for your business operations. Any assets like buildings and equipment for your business are owned by your business. Your personal assets such as houses and vehicles remain your own. If someone sues your business, your personal assets are protected and remain your own so long as your corporation is compliant. If you are concerned about liability, hiring W-2 employees or taking on investors, incorporation is a good way to protect yourself and your assets.
When you incorporate your business is required to file its own tax return with the government and the state you operate in. While this is an additional expense, filing taxes as a corporation can also save you money. If your self-employed business is making more than $100,000.00 per year, it may be time to look into incorporation. As a self-employed business owner you are subject to self-employment taxes. Self-employment taxes mimic corporation taxes which can be higher than corporate taxes depending on your income and deductions. You may also be able to deduct more as a business than you can as self-employed. Certain business expenses are not tax deductible unless you file a corporate tax return.
No Longer Flying Solo
If you are taking on a business partner incorporation is probably the way to go. Becoming a corporation, LLC or General Partnership will protect all people involved in the business. Incorporation also involves detailing the percentage ownership and corporate responsibility of each owner. Having a partnership agreement in place does not require incorporation but is almost always a part of incorporation. If you will be accountable to investors, especially investors that own part of your business, incorporation will help protect your personal assets. Keeping your assets separate from your business assets is essential to your personal financial health.
If you have more questions about incorporation and whether it is right for you, feel free to call us at 1-800-572-4419 for a quote and free consultation. You can also email us at [email protected].