Starting a new business is an exciting time, but with so much to be done (and so little time to do it), it's easy to allow some of the most basic (and most heavily penalized) activities to fall through the proverbial cracks. If you intend to have employees, there are several federal and state requirements that will need to be satisfied in order to get your business started properly. That's where an experienced CPA can help.
Employer Identification Number (EIN)
Obtaining an Employer Identification Number (also called a Federal Tax Identification Number) will be your first order of business, because most of the other processes require it. EINs are required for employers, sole proprietors, corporations, partnerships, nonprofit associations, trusts, estates, government agencies, certain individuals, and other business entities for tax filing and reporting purposes. Use the IRS's Internet EIN site (https://sa.www4.irs.gov/modiein/individual/index.jsp), or fill out and mail (or fax) Form SS-4 to the IRS. Note: applying by fax or mail generally takes up to two weeks.
Withholding, Unemployment, and Sales Tax
Once you have your EIN, you will need to establish an account(s) - typically with the Department of Revenue or similar agency - with each state in which your employees live, in order to withhold and remit certain payroll liabilities, such as state income tax (if your state has an income tax), unemployment insurance, and sales tax collections (if applicable).
The IRS also has an online process called The Electronic Federal Tax Payment System® tax payment service - or EFTPS - with which you will enroll, receive credentials, and then use to report and remit federal income taxes, federal unemployment tax, and social security and medicare withholding (a.k.a., Federal Insurance Contributions Act, or FICA tax).
Payroll Record Keeping
In order to comply with the state and federal requirements for payroll withholding, reporting, and remittance, you'll want an accurate payroll reporting system in place - one that is also easy to use will also be helpful because payroll reporting and record keeping can be very time-consuming and costly, especially if it isn't handled correctly. Also keep in mind that almost all employers are required to transmit federal payroll tax deposits electronically through EFTPS. And personnel files should be kept for each employee, which should include the employee's employment application as well as:
Form W-4: completed by the employee and used to calculate their federal income tax withholding. This form also includes necessary information such as address and social security number.
Form I-9: must be completed by the employer to verify that employees are legally permitted to work in the U.S.
Form W-9: to be completed by subcontractors who perform labor or provide services to your company, depending on the type of entity s/he is. Because the regulations for 1099 reporting are getting tighter, and the penalties for failing to report non-employee compensation timely and accurately are getting stiffer, I advise everyone I work with to require that all of their vendors provide them with a completed Form W-9 before they issue them their first check for services. It might be overkill, since many (maybe even most) of your vendors will not require a 1099 in January, but it's better to have the form and not need it, than it is to need the form and not have it.
If you need help setting up or completing any paperwork needed for the formation of your proposed business, don't hesitate to call.
***This article is intended for information purposes only, and is not meant as tax advice. It is not intended to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed by any regulatory agency.