If you are running a small home-based business, you will have to comply with many local, state and federal regulations. Avoid the temptation to ignore regulatory details. Doing so may avert some red tape in the short term, but could be an obstacle as your business grows. Taking the time to research the applicable regulations is as important as knowing your market. Bear in mind that regulations vary by industry. If you’re in the food-service business, for example, you will have to deal with the health department. If you use chemical solvents, you will have environmental compliances to meet. Carefully investigate the regulations that affect your industry. Being out of compliance could leave you unprotected legally, lead to expensive penalties and jeopardize your business.
BUSINESS LICENSES
There are many types of licenses, both state and local as well as professional. Depending on what you do and where you plan to operate, your business may be required to have various state and/or municipal licenses, certificates or permits.
Licenses are typically administered by a variety of state and local departments. Consult your state or local government for assistance.
FICTITIOUS BUSINESS NAME
Search to determine if the name of your proposed business is already in use. If it is not used, register the name to protect your business. For more information, contact the county clerk’s office in the county where your business is based. If you are a corporation, you’ll need to check with the state.
Division of Corporations
& Commercial Code
Heber Wells Bldg.
160 E. 300 S.
Salt Lake City, UT 84114
801-530-4849
General: www.corporations.utah.gov
BUSINESS INSURANCE/WWW.UTAHCOMMERCIALINSURANCE.COM
Like home insurance, business insurance protects your business against fire, theft and other losses. Contact your insurance agent or broker. It is prudent for any business to purchase a number of basic types of insurance. Some types of coverage are required by law, others simply make good business sense. The types of insurance listed below are among the most commonly used and are merely a starting point for evaluating the needs of your business.
Liability Insurance – Businesses may incur various forms of liability in conducting their normal activities. One of the most common types is product liability, which may be incurred when a customer suffers harm from using the product. There are many other types of liability, which are frequently related to specific industries. Liability law is constantly changing. An analysis of your liability insurance needs by a competent professional is vital in determining an adequate and appropriate level of protection for your business.
Property – There are many different types of property insurance and levels of coverage available. It is important to determine the property insurance you need to ensure the continuation of your business and the level of insurance you need to replace or rebuild. You should also understand the terms of the insurance, including any limitations or waivers of coverage.
Business Interruption – While property insurance may pay enough to replace damaged or destroyed equipment or buildings, how will you pay costs such as taxes, utilities and other continuing expenses during the period between when the damage occurs and when the property is replaced? Business Interruption (or “business income”) insurance can provide sufficient funds to pay your fixed expenses during a period of time when your business is not operational.
“Key Man” – If you (and/or any other individual) are so critical to the operation of your business that it cannot continue in the event of your illness or death, you should consider “key man” insurance. This type of policy is frequently required by banks or government loan programs. It also can be used to provide continuity of operations during a period of ownership transition caused by the death, incapacitation or absence due to a Title 10 military activation of an owner or other “key” employee.
Automobile – It is obvious that a vehicle owned by your business should be insured for both liability and replacement purposes. What is less obvious is that you may need special insurance (called “non-owned automobile coverage”) if you use your personal vehicle on company business. This policy covers the business’ liability for any damage which may result from such usage.
ADDITIONAL RESOURCES Officer and Director – Under most state laws, officers and directors of a corporation may become personally liable for their actions on behalf of the company. This type of policy covers this liability.
Home Office – If you are establishing an office in your home, it is a good idea to contact your homeowners’ insurance company to update your policy to include coverage for office equipment. This coverage is not automatically included in a standard homeowner’s policy.
TAXES
Taxes are an important and complex aspect of owning and operating a successful business. Your accountant, payroll person, or tax adviser may be very knowledgeable, but there are still many facets of tax law that you should know. The Internal Revenue Service is a great source for tax information.
Small Business/Self-Employed Tax Center: www.irs.gov/businesses/small/ index.html.
When you are running a business, you don’t need to be a tax expert. However, you do need to know some tax basics. The IRS Small Business/Self-Employed Tax Center gives you the information you need to stay tax compliant so your business can thrive.
For Small Business Forms and Publications visit: www.irs.gov/businesses/small /article.html.
FEDERAL PAYROLL TAX (EIN NUMBERS)
An Employer Identification Number (EIN), also known as a Federal Employer Identification Number (FEIN), is used to identify a business entity. Generally, businesses need an EIN to pay federal withholding tax.
You may apply for an EIN in various ways, one of which is to apply online at www.irs.gov/businesses/small/article/0,,id= 102767,00.html. This is a free service offered by the Internal Revenue Service.
Call 800-829-1040 if you have questions. You should check with your state to determine if you need a state number or charter.
FEDERAL
SELF-EMPLOYMENT TAX
Every employee must pay Social Security and Medicare taxes. If you are self-employed, your contributions are made through the self-employment tax.
The IRS has publications, counselors and workshops available to help you sort it out. For more information, contact the IRS at 800-829-1040 or www.irs.gov.
SALES TAX
EXEMPTION CERTIFICATE
If you plan to sell products, you will need a Sales Tax Exemption Certificate. It allows you to purchase inventory, or materials, which will become part of the product you sell, from suppliers without paying taxes. It requires you to charge sales tax to your customers, which you are responsible for remitting to the state. You will have to pay penalties if it is found that you should have been taxing your products and now owe back taxes to the state. For information on sales tax issues, contact your state government. To register for a Sales and Use Tax License and a Withholding Tax Account for Utah, use Form TC-69, contact:
Utah State Tax Commission
210 N. 1950 West
Salt Lake City, UT 84134
801-297-2200
tax.utah.gov
FEDERAL INCOME TAX
Like the state income tax, the method of paying federal income taxes depends upon your legal form of business.
Sole Proprietorship: You must file IRS Federal Form Schedule C along with your personal Federal Income Tax return (Form 1040) and any other applicable forms pertaining to gains or losses in your business activity. Partnership: You must file a Federal Partnership return (Form 1065). This is merely informational to show gross and net earnings of profit and loss. Also, each partner must report his share of partnership earnings on his individual Form 1040 based on the information from the K-1 filed with the Form 1065.
Corporation: You must file a Federal Corporation Income Tax return (Form 1120). You will also be required to report your earnings from the corporation including salary and other income such as dividends on your personal federal income tax return (Form 1040).
FEDERAL PAYROLL TAX
Federal Withholding Tax: Any business employing a person must register with the IRS and acquire an EIN and pay federal withholding tax at least quarterly. File Form SS-4 with the IRS to obtain your number and required tax forms. Call 800-829-3676 or
800-829-1040 if you have questions.
IRS WEB PRODUCTS
FOR SMALL BUSINESSES
For the most timely and up-to-date tax information, go to www.irs.gov/ businesses/small/index.html.
VIRTUAL SMALL BUSINESS WORKSHOP
www.tax.gov/virtualworkshop/
The Virtual Small Business Tax Workshop is the first of a series of video products designed exclusively for small business taxpayers. This workshop helps business owners understand federal tax obligations. The Virtual Small Business Workshop is available on CD at www.irs.gov/businesses/small/article/0,,id=101169,00.html and online www.irsvideos.gov/virtualworkshop/ if you are unable to attend a workshop in person. Small business workshops are designed to help the small business owner understand and fulfill their federal tax responsibilities. Workshops are sponsored and presented by IRS partners who are federal tax specialists.
Workshop topics vary from a general overview of taxes to more specific topics such as recordkeeping and retirement plans. Although most are free, some workshops have fees associated with them. Fees for a workshop are charged by the sponsoring organization, not the IRS.
The IRS’s Virtual Small Business Tax Workshop is an interactive resource to help small business owners learn about their federal tax rights and responsibilities. This educational product, available online and on CD consists of nine stand-alone lessons that can be selected and viewed in any sequence. A bookmark feature makes it possible to leave and return to a specific point within the lesson. Users also have access to a list of useful online references that enhance the learning experience by allowing them to view references and the video lessons simultaneously.
The Tax Calendar for Small Businesses and Self-Employed (Publication 1518) www.irs.gov/businesses/small/article/0,,id=176080,00.html contains useful information on
ADDITIONAL RESOURCES
general business taxes, IRS and SSA customer assistance, electronic filing and paying options, retirement plans, business publications and forms, common tax filing dates, and federal legal holidays.
SOCIAL SECURITY CARDS
All employees must have a Social Security number and card. It must be signed by its owner, and you should always ask to see and personally record the Social Security number. Failure to do so may cause your employee to lose benefits and considerable trouble for yourself in back tracking to uncover the error.
Each payday, your employees must receive a statement from you telling them what deductions were made and how many dollars were taken out for each legal purpose. This can be presented in a variety of ways, including on the check as a detachable portion or in the form of an envelope with the items printed and spaces for dollar deductions to be filled in.
EMPLOYEE CONSIDERATIONS
Taxes
If you have any employees, including officers of a corporation but not the sole proprietor or partners, you must make periodic payments towards, and/or file quarterly reports about payroll taxes and other mandatory deductions. You may contact these government agencies for information, assistance and forms.
Social Security Administration
800-772-1213
www.ssa.gov
Federal Withholding
U.S. Internal Revenue Service
800-829-1040
www.irs.gov
Utah Department of Workforce Services
Downtown Metro Office
720 S. 200 East
Salt Lake City, UT 84111
801-526-9850
Clearfield Center
1290 E. 1450 South
Clearfield, UT 84015
866-435-7414
Provo Center
1550 N. 200 West
Provo, UT 84604
801-342-2600
http://jobs.utah.gov
Social Security’s Business Services Online
The Social Security Administration now provides free electronic services online at www.socialsecurity.gov/employer/. Once registered for Business Services Online, business owners or their authorized representative can:
- file W-2s online; and
- verify Social Security numbers through the Social Security Number Verification Service, used for all employees prior to preparing and submitting Forms W-2.
Federal Withholding
U.S. Internal Revenue Service
800-829-1040
www.irs.gov
Health Insurance
Compare plans in your area at
www.healthcare.gov.
Employee Insurance
If you hire employees you may be required to provide unemployment or workers’ compensation insurance. Employers can obtain coverage from a private insurance company or from the Workers’ Compensation Fund.
Utah Labor Commission
160 E. 300 South, 3rd Fl.
Salt Lake City, UT 84114-6610
801-530-6800
WORKPLACE DISABILITY PROGRAMS
Americans with Disabilities Act (ADA): For assistance with the ADA, call 800-669-3362 or visit www.ada.gov.
U.S. CITIZENSHIP AND IMMIGRATION SERVICES
The Federal Immigration Reform and Control Act of 1986 requires employers to verify employment eligibility of new employees. The law obligates an employer to process Employment Eligibility Verification Form I-9. The U.S. Citizenship and Immigration Services Office of Business Liaison offers a selection of information bulletins and live assistance through the Employer Hotline. For forms call 800-870-3676, for the Employer Hotline call 800-357-2099.
E-Verify: Employment Eligibility Verification
E-Verify, operated by the Department of Homeland Security in partnership with the Social Security Administration, is the best — and quickest — way for employers to determine the employment eligibility of new hires. It is a safe, simple, and secure Internet-based system that electronically verifies the Social Security number and employment eligibility information reported on Form I-9. E-Verify is voluntary in most states and there is no charge to use it.
If you are an employer or employee and would like more information about the E-Verify program, please visit
www.dhs.gov/E-Verify or contact
Customer Support staff: 1-888-464-4218 Monday – Friday 8 a.m. – 5 p.m.
E-mail: e-verify@dhs.gov
SAFETY AND HEALTH REGULATIONS
All businesses with employees are required to comply with state and federal regulations regarding the protection of employees. The Occupational Safety and Health Administration provides information on the specific health and safety standards adopted by the U.S. Department of Labor. Call 1-800-321-6742 or visit www.osha.gov.
general business taxes, IRS and SSA customer assistance, electronic filing and paying options, retirement plans, business publications and forms, common tax filing dates, and federal legal holidays.
SOCIAL SECURITY CARDS
All employees must have a Social Security number and card. It must be signed by its owner, and you should always ask to see and personally record the Social Security number. Failure to do so may cause your employee to lose benefits and considerable trouble for yourself in back tracking to uncover the error.
Each payday, your employees must receive a statement from you telling them what deductions were made and how many dollars were taken out for each legal purpose. This can be presented in a variety of ways, including on the check as a detachable portion or in the form of an envelope with the items printed and spaces for dollar deductions to be filled in.
EMPLOYEE CONSIDERATIONS
Taxes
If you have any employees, including officers of a corporation but not the sole proprietor or partners, you must make periodic payments towards, and/or file quarterly reports about payroll taxes and other mandatory deductions. You may contact these government agencies for information, assistance and forms.
Social Security Administration
800-772-1213
www.ssa.gov
Federal Withholding
U.S. Internal Revenue Service
800-829-1040
www.irs.gov
Utah Department of Workforce Services
Downtown Metro Office
720 S. 200 East
Salt Lake City, UT 84111
801-526-9850
Clearfield Center
1290 E. 1450 South
Clearfield, UT 84015
866-435-7414
Provo Center
1550 N. 200 West
Provo, UT 84604
801-342-2600
http://jobs.utah.gov
Social Security’s Business Services Online
The Social Security Administration now provides free electronic services online at www.socialsecurity.gov/employer/. Once registered for Business Services Online, business owners or their authorized representative can:
- file W-2s online; and
- verify Social Security numbers through the Social Security Number Verification Service, used for all employees prior to preparing and submitting Forms W-2.
Federal Withholding
U.S. Internal Revenue Service
800-829-1040
www.irs.gov
Health Insurance
Compare plans in your area at
www.healthcare.gov.
Employee Insurance
If you hire employees you may be required to provide unemployment or workers’ compensation insurance. Employers can obtain coverage from a private insurance company or from the Workers’ Compensation Fund.
Utah Labor Commission
160 E. 300 South, 3rd Fl.
Salt Lake City, UT 84114-6610
801-530-6800
WORKPLACE DISABILITY PROGRAMS
Americans with Disabilities Act (ADA): For assistance with the ADA, call 800-669-3362 or visit www.ada.gov.
U.S. CITIZENSHIP AND IMMIGRATION SERVICES
The Federal Immigration Reform and Control Act of 1986 requires employers to verify employment eligibility of new employees. The law obligates an employer to process Employment Eligibility Verification Form I-9. The U.S. Citizenship and Immigration Services Office of Business Liaison offers a selection of information bulletins and live assistance through the Employer Hotline. For forms call 800-870-3676, for the Employer Hotline call 800-357-2099.
E-Verify: Employment Eligibility Verification
E-Verify, operated by the Department of Homeland Security in partnership with the Social Security Administration, is the best — and quickest — way for employers to determine the employment eligibility of new hires. It is a safe, simple, and secure Internet-based system that electronically verifies the Social Security number and employment eligibility information reported on Form I-9. E-Verify is voluntary in most states and there is no charge to use it.
If you are an employer or employee and would like more information about the E-Verify program, please visit
www.dhs.gov/E-Verify or contact
Customer Support staff: 1-888-464-4218 Monday – Friday 8 a.m. – 5 p.m.
E-mail: e-verify@dhs.gov
SAFETY AND HEALTH REGULATIONS
All businesses with employees are required to comply with state and federal regulations regarding the protection of employees. The Occupational Safety and Health Administration provides information on the specific health and safety standards adopted by the U.S. Department of Labor. Call 1-800-321-6742 or visit www.osha.gov.
There are many forms and legal ways you may choose for your business. Each legal structure offers organizational options with different tax and liability issues. We suggest you research each legal structure thoroughly and consult a tax accountant and/or attorney prior to making your decision.
The most common organizational structures are sole proprietorships, general and limited partnerships and limited liability companies.
Each structure offers unique tax and liability benefits. If you’re uncertain which business format is right for you, you may want to discuss options with a business counselor or attorney.
Sole Proprietorship
One person operating a business as an individual is a sole proprietorship. It’s the most common form of business organization. Profits are taxed as income to the owner personally. The personal tax rate is usually lower than the corporate tax rate. The owner has complete control of the business, but faces unlimited liability for its debts. There is very little government regulation or reporting required with this business structure.
General Partnership
A partnership exists when two or more persons join together in the operation and management of a business. Partnerships are subject to relatively little regulation and are fairly easy to establish. A formal partnership agreement is recommended to address potential conflicts such as: who will be responsible for performing each task; what, if any, consultation is needed between partners before major decisions, and what happens when a partner dies. Under a general partnership each partner is liable for all debts of the business. Profits are taxed as income to the partners based on their ownership percentage.
Limited Partnership
Like a general partnership, a limited partnership is established by an agreement between two or more persons. However, there are two types of partners.
- A general partner has greater control in some aspects of the partnership. For example, only a general partner can decide to dissolve the partnership. General partners have no limits on the dividends they can receive from profit so they incur unlimited liability.
- Limited partners can only receive a share of profits based on the proportional amount of their investment, and liability is similarly limited in proportion to their investment.
LLCs and LLPs
The limited liability company or partnership is a relatively new business form. It combines selected corporate and partnership characteristics while still maintaining status as a legal entity distinct from its owners. As a separate entity it can acquire assets, incur liabilities and conduct business. It limits liability for the owners. The limited liability partnership is similar to the LLC,