First Steps to Business Startup
The first steps to business startup involve obtaining licenses and fees, setting up a business bank account, obtaining a business phone number, and in general establishing your business presence, either online or in your community.
1. Choose a name (3 choices) – NJ Gateway.org
2. Name availability search
3. Determine Entity
4. Entity Formation Process
5. Accepted By State
6. IRS and Get Fed Tax ID #
7. Business Certificate Registration
8. Pay the State filing Fees
9. Register with the State for applicable taxes
10. Order & pay for the corporate kit
11. Meet with client to go over the requirements for corporate kit and deliver the final package with copies of all documents
12. Form 8832 entity election (LLC) which means you are choosing how you want your entity to be taxed.
13. S Corp Election is Form 2553 for federal election which means you are asking IRS to accept the corporation election to be treated as an S Corp for tax purposes. Similar one for NJS 2553.
14. run business packages.
15. bank accounting
· Apply for an Employer ID Number
· File a Fictitious Name (DBA) Statement
· Select Your Tax Year and Accounting Method
Choose a Business Name and Location
Creating a name for your business and finding a location may be the most difficult part of your business. Learn how to create a great business name and find a location that will work for you.
· Select Your Business Name
· Register Your Business Name
· Trademark Your Business Name and Logo as a "Brand"
· Select Your Business Location
Choose Your Business Legal Type
This decision is one which gives lots of new business owners problems, because there are so many possibilities, and the consequences of your decision can affect your business future. We will look at the criteria for selecting a legal form of organization and compare the various types of businesses - sole proprietorship, partnership, limited liability company, s-corporation, or c-corporation - to help you make an informed decision.
· Which Business Type is Best?
· Choosing a Type of Business
· Taxes for Different Legal Business Types
Starting a Business - Legal Types of Business
Each type of business - sole proprietorship, limited liability company, partnership, corporation - has different requirements for start-up. Learn about the specific steps to start the type of legal form for your company.
· Forming a Limited Liability Company
· Starting a Partnership
· Starting a Sole Proprietorship
· Starting a Corporation or S Corporation
Prepare to Pay Business Taxes
As you start your business, don't forget about taxes you must pay. Some, like sales tax, are collected and turned in to state or federal agencies. Other taxes are paid on your business income. Learn about these taxes and how to get registered to pay them.
· All the Taxes Paid by Businesses
· Get Started with Sales Taxes
· Income Taxes for Your Business Type
· Prepare to Deduct, File, and Pay Payroll Taxes
Create Your Financial Projections
One of the most important tasks in starting a business and obtaining financing is to put together financial projections. How much will the business take in as income? What is needed for startup? How much will the monthly expenses be? All of these questions need to be thoughtfully researched and determined. This section will discuss each step in the process of preparing financial projections.
1. Begin by determining what you will "day one" of your business, in order to open the doors (or take your website live) and begin accepting customers. A start-up budget can be broken down into four categories (depending on your situation, some of the categories may not apply to your business.)
Facilities. This section includes lease security deposits, furniture and fixtures, tenant improvements, and signage.
Equipment, including office furniture, computers, and equipment and production and shipping equipment and machinery.
2. Continuing with start-up costs:
Materials and supplies, for your office and production areas and a supply of start-up advertising and promotion materials.
Other costs, like initial attorney and accounting set-up fees, licenses and permits, insurance deposits, and fees to set up your business type.
Include items you are contributing to the business, like a computer and office furniture. Note these items so you can get credit for them as collateral.
3. Monthly Fixed Expenses. Gather information about your fixed expenses - those that do not change with the number of customers you have. Here is a list of the most common fixed expenses:
· Rent
· Utilities
· Phones (business phones and cell phones
· Credit card processing - monthly fee for service
· Website service fees
· Equipment Lease Payments
· Office Supplies
· Dues/Subscriptions
· Advertising, Publicity, and Promotion commitments, like phone book, online ads
· Business insurance
· Professional fees (legal and accounting)
· Employee Pay/Benefits
· Misc. Expenses
· Business Loan Payment
4. Variable Expenses. Add expenses that vary with customers. These might include:
· Commissions on sales
· Production costs
· Raw materials
· Wholesale price of goods to be re-sold
· Packaging and shipping costs.
It will be easiest to get a cost per unit sold for the next step.
5. Estimate Monthly Sales. This is probably the most difficult part of a budget, because you don't know what sales will be for a new company. You might want to do three different sales projections:
· Best case scenario, in which you show your most optimistic estimate for first year sales
· Worst case scenario, in which you show your least optimistic scenario, with very little sales during the first six months to a year
· Likely scenario, somewhere in between. The likely scenario would be the one to show your lender.
6. Determine your collections percentage. To be realistic in your budgeting, you must assume that not all sales will be collected. Depending on the type of business you have and the way customers pay, you might have a greater or smaller collections percentage.
Include a collections percentage along with your estimate of sales for each month. For example, if you estimate sales in Month One to be $50,000 and your collection percentage is 85%, show your cash for the month to be $42,500.
7. Calculate variable costs for each month based on sales for the month. For example, if your estimated sales for a month are 2,500 units and your variable costs are $5.50 per unit, total variable costs for the month would be $13,750.
Add monthly variable costs to monthly fixed costs to get total monthly costs (expenses). You might want to calculate your break-even point to include with your budget.
8. Create a cash flow statement by combining total costs with total sales and collections for each month. The monthly totals will look something like this:
Monthly sales $50,000
Collected $42,500
Total fixed costs $26,900
Total variable costs $13,750
Total cash balance $2,150
The $2,150 represents your total cash balance for the month, not your profit.
9. By changing your sales figures using the three scenarios above, you can see the result in your cash balance at the end of each month. This cash balance can give you information about your cash needs and how much you might need to borrow for working capital.
Tips:
· Use your accounting software program to create your budget, so you can use existing accounts and make changes more easily.
· If you don't have an accounting software program, you can use a spreadsheet program.
· Most lenders require three years of cash flow statements on a month-by-month basis, and three years of quarterly and annual Income Statements (P&Ls).
· Income taxes are a variable expense, and you don't know what taxes you will have to pay until you calculate your net income. Don't include taxes in fixed expenses or variable expenses but make these a separate category.
What You Need:
An accounting software program or spreadsheet program.
Information on the costs associated with sales of products.
· Create a Break-even Analysis
· Calculate Cost of Goods Sold
Prepare a Business Plan
If you don't need money to start your business, congratulations! Even in this circumstance, you should still have a business plan, to help you chart your course and plan for all eventualities. In this section, you'll go through the process of creating a business plan, using a simple business plan template.
· Create a "Year One" Marketing Plan
How Do I Create a Marketing Plan for My Business Start-up?
Here are the steps in creating a marketing plan for your new business.
Answer:
First, describe Your Product or Service
Describe in detail the products you will selling. For each product, include the following information:
- A general description of each product
- Pricing structure of this product and whether you will have different prices for various markets.
- Whether you will produce this product or purchase from a wholesaler to resell to your customers.
If you are providing services, describe these services in detail, including:
- A general description of each type of service and how it will be performed.
- Pricing for the various services you will be providing.
Describe Your Target Market
Create a description of your Target Market. This description should include:
- A description of your "ideal" customer in terms of this person or company's characteristics, attitudes, and buying behaviors. This description should be as complete as possible.
- A discussion of the information about the "population" to whom you will be selling, in terms of numbers and demographics (characteristics), like age, sex, education level, income level, and other important information.
- A description of the buying behaviors of your Target Market.
Include an Analysis of Your Competition
Create a description of the competition for your products or services within your Target Market, including:
- Numbers of competitors, both direct and indirect
- Characteristics of your top 3 competitors
- Unique points of difference between you and your competitors
- The ways in which you will emphasize the difference between your products/services and those of your competitors, in terms of delivery, customer service, product differentiation, or other characteristics.
Create a First Year Marketing and Promotion Plan
When you have created a description of your products/services and your target market, the next step is creating a strategy for marketing and promoting your company's products and/or services to this market. Many marketing plans create a first-year plan and extend that plan to future years. Here are some items this Marketing and Promotion Plan should include:
- The top 3 ways in which you will initially inform your Target Market about the existence of your products/services.
- The types of paid advertising you will use to promote your products/services.
- The ways in which you will use publicity to promote your products/services.
- The personal selling methods you will use to promote your products/services.
- The types of materials (brochures, fliers, web site) you will use to promote your new products/services.
Along with your marketing and promotion strategies, you will need to create a budget for all of these activities, for the first three years of your business.
Find Startup Financing for Your Business
Now that you have done all the work of preparing a business plan, you are ready to start taking it to banks and investors and others. But how do you do that? Where do you go? What do you say? In this section, we will provide the answers.
- Find out What SBA Loan Programs are Available
- Learn about Alternative Financing in Tough Financial Times
- Learn about Small Business Loan Requirements
All the taxes paid by each business type - sole proprietorship, limited liability company, partnership, or corporation. Income taxes (federal and state), self-employment taxes, sales and use taxes, and payroll taxes are included.
· Taxes Paid by Sole Proprietorships
· Taxes Paid by Partnerships
· Taxes Paid by Limited Liability Companies (LLCs)
· Taxes Paid by Corporations
· Taxes Paid by Subchapter S Corporations
Federal Income Tax Forms for Business Types
Income tax forms, employment tax forms, they are all here for you, with general explanations of how to complete these forms.
· How to Complete a Schedule C for Sole Proprietorship, Single-member LLC
· How to Complete Schedule SE for Self-Employment Taxes
· Use Schedule 8829 to Calculate Deductions for Business Use of Your Home
Employment Tax Forms You Should Know About
Federal income tax form preparation process and deadlines, employment tax forms, and other forms businesses must file.
· Requirements for Processing and Submitting W-2s, W-3s, 1099-MISC and 1096 Forms
· Completing W-2 Forms
· Completing 1099-MISC Forms
· Preparing and Submitting W-3 Transmittal of Wages Forms (with W-2s)
· Preparing and Submitting Form 1096 Transmittal Forms (with 1099s)
Save on Income Taxes with These Deductions
You can save on your federal income taxes by using the power of deductible expenses. Here are the most common expenses you can deduct for maximum tax savings.
· Business Tax Deductions A to Z
Here is a list of common business tax expenses you can deduct, listed from A to Z.
1. Accounting, Bookkeeping, Tax Expenses
You can deduct expenses for a bookkeeper, accountant, CPA, or tax adviser to help you manage your finances and deal with tax issues.
2. Advertising Expenses
Deducting expenses for advertising and marketing.
3. Books, Magazines, Software
Deducting costs for business reference books, magazines and professional journals, and business-necessary software.
4. Car and Truck mileage Expenses
Deducing expenses for business use of a vehicle to and from meeting with date and contact.
5. Commissions and Fees
Deducting commissions to sales people and fees to independent contractors.
6. Dues for Clubs and Organizations
Deducting Dues for Business-related Clubs and Organizations
7. Employee Education and Training Expenses
Deducting the cost of employee education and training expenses
8. Employee Expenses (Other)
Don't forget other employee expenses, from wages to awards and recognition, and expenses for employee travel. Use this list to make sure you don't miss anything
· Subscriptions to trade journals and magazines used by employees in the course of business
· Employee awards, including achievement awards, service awards, safety awards, sales incentive awards.
· Bonuses or other additional compensation paid to employees
· Prizes to employees given as a result of a contest; a sales contest prize, for example
· Christmas or other holiday gifts to employees, either in cash or in kind (de minimus rules apply)
· Childcare expenses for employee children, if a plan is in place
· Commissions to employees for sales, securities sales, agent fees, and other commissions
· Employee events, such as dances, picnics, holiday parties, outings, or other entertainment
· Living expenses for employees (while on long-term assignment, for example) for company purposes
Tax Calendar
Tax Season is Year-round. Here is a list of tax filing and reporting deadlines by month, with links to the forms you need to file.
- October Business Tax Payments and Reports
October 15 - File Your Non-corporate Income Tax Return (if you extended)
If you are filing your business income tax along with your personal tax return, you may have filed a request for an extension. Well, that extension runs out on October 15 and your tax return is due by this date. This deadline applies to sole proprietorship, single-member LLC and partnership filings.
- November Business Tax Payments and Reports
November 2 - Deposit Federal Unemployment Taxes (if Over $500)
If you owe more than $500 in federal unemployment (FUTA) taxes for the quarter ending September 30, you must deposit your payment no later than October 31. If the 31st is a Saturday, you have until November 2 to make the deposit.
- December Business Tax Payments and Reports
December 15 - Corporations Must Pay 4th Quarter Estimated Corporate Taxes
Your corporation must pay estimated taxes each quarter.
Entity Formation Elections and Tax Payments
How Do I File an Entity Election for an LLC?
LLC Taxed as Corporation An LLC can also elect to pay income tax as what the IRS calls "an association taxable as a corporation." This election is made on IRS Form 8832. Here are some things you need to know about this election:
- The form allows "eligible entities" to file this election. LLCs are specifically stated to be eligible entities.
- The IRS uses the term "association" to mean "an eligible entity taxable as a corporation by election...."
- The form includes a consent statement which may be signed by all members, or by one member on behalf of all members. If one member signs, there should be some record in company membership meetings that all members approved this election.
- You must provide the name(s) and identifying number(s) of owners (Social Security Number for a single-member LLC, and Employer ID for multiple member LLC).
Effect of the Election
You should know the effect of this election on your taxes. Here is what the IRS says about the effect:
- If your multiple member LLC is classified as a partnership, it is deemed by the IRS that the partnership contributes all of its assets and liabilities to the association in exchange for stock in the association, and immediately thereafter, the partnership liquidates by distributing the stock of the association to the partners.
- If you are a disregarded entity and you elect to be classified as an association (corporation), you are deemed to have contributed all the assets and liabilities of the entity to the association in exchange for the stock of the association.
When to File
The election to be taxed as the new entity will be in effect on the date the LLC enters on line 8 of Form 8832. The election cannot take effect more than 75 days before he date the election is filed, nor can it take effect later than 12 months after the date the election is filed. There are other rules for filing this form for new businesses; check with your tax adviser for the timing of this filing.
How Does a Limited Liability Company Pay Income Tax?
A limited liability company (LLC) is a form of business organization recognized by all states. Forming an LLC provides limited liability protection for owners, who are taxed at their personal tax rates. A limited liability company is not a taxing entity, and it is not recognized by the Internal Revenue Service for tax purposes. So how does an LLC pay income tax? The default taxation method for single-member and multiple-member LLCs is explained here, followed by the alternative - election to be taxed as a corporation.
Answer:
It depends on whether the LLC has one member or more than one member.
Single-Member LLC Income Tax
A single member LLC is taxed as a sole proprietorship. That is, the information about the LLC's income and expenses, and its net income, is prepared using Schedule C. The net income from the Schedule C is brought over to Line 12 of the owner's personal tax return (Form 1040 or other).
Multiple-Member LLC Tax
An LLC which has more than one member is pays income tax as a partnership. The partnership itself does not pay taxes directly to the IRS; the individual partners pay tax based on their share of ownership in the partnership.
The partnership files an information return with the IRS on Form 1065. Then a Schedule K-1 is prepared for each partner, showing the share of the profit/loss of the partnership. The K-1 is filed with the partner's individual return and the gain/loss is shown on the partner's Form 1040.
For All LLC's
The income or loss from the LLC is considered along with other income of the owner (and spouse, if applicable) for the purpose of determining the total tax liability of the owner.
Any profit from the LLC is used to determine the owner's self-employment tax liability; if the LLC has no profit, no self-employment tax is owed for that year.
How Does an S Corporation Pay Income Tax?
An S corporation is a special kind of corporation that pays income taxes at the personal tax rate of the owners.
Answer:
An S corporation pays taxes in the following process:
1. The corporation files its taxes on Form 1120S, showing income and deductible expenses and including Schedule K, which lists the items which are distributed among shareholders.
2. A Schedule K-1 is prepared for each shareholder showing that person's pro rata share of the profits/losses of the business for that year.
3. The Form 1120S and all K-1s are filed with the IRS as an information return.
4. The shareholder reports s corporation income on Line 17 of his/her Form 1040.
How Does a Corporation Pay Income Tax?
A corporation is a separate entity from its owners and shareholders. As a separate entity, the corporation's owners do not pay the taxes for the corporation.
Answer:
A corporation pays income tax by filing a corporate tax return on Form 1120 and paying the taxes as indicated by this return. Corporate income taxes are paid at the corporate income tax rate, not the personal tax rate.
How Does a Partnership Pay Income Tax?
A partnership is a business owned by several individuals who have signed a partnership agreement and have invested in the business. There are various types of partnerships, but all pay income tax in the same way.
Answer:
A partnership itself does not pay income taxes directly to the Internal Revenue Service. Instead, the partners are taxed on their shares of the income/loss of the partnership on their personal tax returns. The partnership files an information return on Form 1065, showing the total amount of income and expenses and other deductions, the net income of the partnership, and the share of that income for each partner.
Along with the partnership information return on Form 1065, the tax preparer also prepares a Schedule K-1 for each partner, which breaks down the partnership income and share of that income for that partner, along with other information. The Schedule K-1 is filed with the partner's personal income tax return, and the amount of loss or income is included along with the partner's other income. Thus, partners pay income tax on their business activities and other income at the applicable personal tax rate for the year.
How Does a Sole Proprietorship Pay Income Tax?
A sole proprietorship is a business entity owned by an individual and identified with that individual. A sole proprietor is often referred to as "self-employed." The business and the individual are the same, so the liability of the business is borne by the individual.
Answer:
A sole proprietorship is taxed through the personal tax return of the owner, on Form 1040. The business profit is calculated and presented on Schedule C. To complete the Schedule C, the income and allowable expenses of the business are listed. The net income of loss of the business is entered on Line 12 of the owner's Form 1040, to be included along with other income/loss of the owner for income tax purposes. The owner also pays self-employment tax (Social Security/Medicare) on the sole proprietorship income. (See Schedule SE for the self-employment tax calculation.) If the business has a loss for the year, no self-employment taxes are due.
The owner of the sole proprietorship pays income tax on all income, including income from business activities, at the applicable individual tax rate for that year.
FAQs - LLC
If you are ready to start a business, you may be considering starting a limited liability company (LLC). Here are some common questions you may be asking about how to form an LLC.
Answer:
Do I need an attorney to help me start an LLC?
No. An attorney or Expert can certainly help if you are unsure about how to file your LLC application in your state. You should have an Expert help you prepare the Operating Agreement of the LLC to be sure you have not forgotten anything.
After the limited liability company is formed, what are the Record keeping Requirements?
In the same manner as a corporation, minutes need to be kept of meetings of the limited liability company. You may also have to file periodic reports with your state Secretary of State.
What is the cost to form an LLC?
You will need to pay a fee for filing your Articles of Organization/Certificate of Organization. This fee varies by state, but it is usually between $50 and $200. If you have an attorney do this filing, it can cost you an additional $500 or more. If the attorney prepares the Operating Agreement, that will be another cost, probably $1000 or more.
If I file articles of organization, do I also need to register the limited liability company's name?
In most states, the registration of the LLC also serves to register the name. Check with your state Secretary of State to be sure.
