I recently posted an article about selecting the best entity for your side gig or new practice. After you’ve made the decision to be either a Sole Proprietor, LLC, or S-corporation, the next step is to actually register and set up your entity with local, state, and federal tax agencies. Is it time to see an attorney or is this a DIY project you can tackle yourself?
In general, you should always seek professional legal advice if you will have a partner or at least one other shareholder besides yourself in your business. You’ll need an attorney to draft a strong Operating Agreement and a set of Bylaws. But for a simple solo-owner business, you may be able to handle the setup on your own. Here’s what to do:
Sole proprietor –
- Check with your locality (county, city or both) for any required business licenses and zoning permits. Also ask for instructions regarding required reports and annual fees or taxes.
- Set up a bookkeeping system (we use QuickBooks online).
- Open a separate bank account for the business. It is far easier to account for business activities if they are not intermingled with your personal income and expenditures.
- Optional: Obtain an EIN (needed if you will have employees and/or to avoid using your SSN).
In addition to these steps, you should always seek the advice of a CPA experienced in advising small businesses (and also doctors, if possible) about such things as home offices, proper retirement plans, recordkeeping, and so forth. Business taxation is not a DIY project.
That’s it – no other registration or reporting needed except to file an annual Schedule C attached to your Form 1040. Nolo.com has a handy 50-state guide detailing requirements for your state.
All business entities start their journey into existence with the Secretary of State (“SOS”). I have found this list of all SOS’s in the USA to be extraordinarily useful.
- Follow the steps for sole proprietor, including “Obtain an EIN”.
- Choose your state and click on “Entity Search” to make sure your name is not already taken.
- Click on “Forms” for your state and scroll down to “Domestic LLC Forms” or “Foreign LLC Forms” and go to the Articles or Organization for Professional Services.
- Send your completed, signed form + filing fee to the address indicated.
- Renew periodically (1 year for some states, 2 years for others)
- Complete the above sole proprietor and LLC steps, choosing “Articles of Incorporation” for a Professional Service Corp. At this point, you are a plain-vanilla PSC (“C” corporation).
- Complete and file Form 2553 within 75 days after you incorporate. (Note: the IRS accepts late filers if you follow the correct steps. Email me or see your CPA if this is the case.)
After filing Form SS4 to obtain an EIN, you will automatically notify the IRS that you will have employees. This puts you into the payroll system to receive forms 941 and 940. Next steps are state and local. This guide from Intuit is invaluable in helping you navigate your state’s requirements. You need to apply for:
- Unemployment Insurance,
- State income tax withholding (if applicable),
- A sales tax permit (if applicable). In Kentucky, you can apply for all accounts on one form, but rules vary by state, and
- Any specific filings that are particular to your state.
At the local level, you’ll have to call your City Hall and County Court Clerk for the necessary permits, forms, and regulations.
One last suggestion: always keep a copy of the forms you file and any correspondence you receive as a result, such as notifications that your application has been approved along with the numbers you have been assigned. Your CPA will want copies and they are much easier to track down in your file cabinet than chasing down all of the various applications you submitted along with the related correspondence.
That’s the rundown. Think you can handle it?
What Business Entity Should I Choose?
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