Checklist for New Businesses

Tax Information for New Businesses

Starting a new business?  Here are some of the things that you'll need to think about.  Also see my FAQ page which lists additional tax tasks for new businesses.  If you have a suggestion for something to add to this page, please send me an email.

1.  If you take no special steps, your business is a sole proprietorship (1 owner) or a partnership (2 or more owners.)  For tax purposes, a husband and wife can be considered as one owner.  A corporation or LLC might have advantages.  For many people, the choice narrows down to an S corporation versus an LLC.

2.  Whenever there is more than one owner, I strongly recommend a written operating agreement.  How will profits & losses be divided?  When will cash be disbursed?  What if the company needs more money?  What if an owner is disabled or dies?  What if an owner wants to leave the business?  What are the long-term goals for the company?  You can go the do-it-yourself route with a Nolo Press guide, or use an experienced business attorney like Janet Fogarty in Millbrae.

3.  Your business needs a bookkeeping system to track the money it takes in and the money it disburses.  If you have only 4 or 5 expenses per month, you can use an expense tracker with receipt scanner app on your phone.  Otherwise, almost everyone uses QuickBooks.  It is available in a monthly online version or a one-time purchase desktop version. I know that bookkeeping seems straightforward and you should be able to set up your system yourself, but I believe that you will have a better, easier system if you have support. Liz Mayta, is a terrific bookkeeper in San Mateo.

4.  Your business also needs a system for tracking business-related car mileage.  There are several apps that use your phone's GPS to generate mileage reports.  If your business requires a lot of driving, this can generate a large tax deduction.

5.  In order to open a bank account for the new business, it will need a federal tax i.d. number (FEIN.)  It's free and pretty simple to apply for your tax i.d. online.

6.  If you are going to do business under a name that's different than your name, you need to register the fictitious business name with your county clerk.  You don't need to do this if you are forming a corporation or LLC.

7.  You need a business license from the city where your business is located or operating.  In Burlingame and some other cities, a separate, additional license is required if your business is operated from your home.  It's important to have all of the required licenses in order to protect your business's legal rights, as well as to avoid penalties later.

8.  Will you be selling product and collecting sales tax?  If you are in California, you need to register with the California Department of Tax and Fee Administration .  They insist on registering online; no paper forms are available. Their site has lots of information about how much sales tax to collect and how & when to remit it to the state.  Also, if you will have significant out-of-state sales (we think $100,000 of goods or services, or 200 or more separate transactions), ask me about the new Wayfair, Inc. case decided by the U.S. Supreme Court in June, 2018.

9.  All businesses with annual sales of more than $100,000 must register with the CDTFA and file annual use tax returns.  This applies to all types of businesses, even ones which sell only services and no physical product.

10.  Will you have employees?  You've already registered with the IRS when you obtained your federal i.d. number (#5 above.)  But you also need to register with the EDD, California's employment department.  And hire a payroll company, such as Gusto, to handle the payroll paperwork.  Gusto will also remind you to have each employee fill out Forms I-9 and W4.

And, of course, I recommend that you meet with an experienced CPA tax accountant and discuss:

  • How will the company impact your personal tax returns?
  • When are the company's tax returns due?
  • How much tax will the company owe, and when must it be paid?
  • If the company's expenses are more than its sales (a "net operating loss") how is that treated for tax purposes?

Other tax questions you may have.

M Bess Kane, CPA
September, 2020