NEW BUSINESS START UP KIT by jennyyingdi

VIEWS: 9 PAGES: 11

									                                 2010-2011

 NEW BUSINESS START-UP KIT




A Guide to Financial, Tax and
Accounting Considerations of
Starting a New Business
                                Andrew C. Berg, CPA
                                Teitelman Rosenthal Block Berg & Company
                                625 W. Ridge Pike
                                Building E, Suite 201
                                Conshohocken, PA 19428

                                (P) 610-941-1040
                                (F) 610-941-1232

                                www.block-berg.com
                                   TABLE OF CONTENTS


CHAPTER 1: YOUR LEGAL ENTITY

    Sole Proprietorship .............................................................................. 2
    Partnerships ........................................................................................ 2
    Corporation ......................................................................................... 3
    S Corporation ...................................................................................... 3
    Limited Liability Company (LLC) .......................................................... 4

CHAPTER 2: REGISTERING WITH THE TAX AUTHORITIES

    Internal Revenue Service ..................................................................... 6
    Business License ................................................................................. 6
    Tax Calendar ....................................................................................... 7

CHAPTER 3: ACCOUNTING AND BOOKKEEPING

    Chart of Accounts ................................................................................ 9
    Cash or Accrual Accounting ............................................................... 10
    Accounting Records and Record-Keeping ........................................... 10
    A Word About Computer Systems ...................................................... 11
    Internal Control ................................................................................. 11
    Illustrative Chart of Accounts ............................................................ 13

CHAPTER 4: PAYROLL TAXES & REPORTS

    Available Publications ........................................................................ 16
    Tax Deposit Requirements ................................................................. 16
    Federal Unemployment Taxes ............................................................ 17
    State Unemployment Taxes................................................................ 17
    Supplemental Wages ......................................................................... 17
    Fringe Benefits .................................................................................. 18
    Other Tax Requirements .................................................................... 19
    Employee VS. Independent Contractor – 20 Factors ........................... 20
    Tax Rates .......................................................................................... 23

CHAPTER 5: FISCAL YEAR-END

    Which Month to Choose ..................................................................... 25
    How to Make the Election .................................................................. 25
    Changing the Year-End...................................................................... 26

CHAPTER 6: INCOME TAXES

    Income Tax Forms ............................................................................. 28
    Estimated Tax Payments.................................................................... 28
    Due Dates ......................................................................................... 29
    Extensions......................................................................................... 29
    First Corporate Return....................................................................... 30
    Tax Planning ..................................................................................... 30
    State Taxes ........................................................................................ 30
    Conclusion ........................................................................................ 30
CHAPTER 7: CASH PLANNING AND FORECASTING

        Starting the Analysis ......................................................................... 32
        Cash Collections ................................................................................ 33
        Disbursements .................................................................................. 33
        Projected Statement of Cash Flow ...................................................... 34

CHAPTER 8: CREDIT AND FINANCING FOR YOUR BUSINESS

        How Do I Get the Money .................................................................... 37
        Financing Alternatives ....................................................................... 38
        Debt Financing Sources ..................................................................... 38
        Equity Financing Sources .................................................................. 39

CHAPTER 9: INSURANCE

        Required Policies ............................................................................... 42

CHAPTER 10: SELECTING PROFESSIONAL ADVISORS ............................ 45


CONCLUSION ............................................................................................ 46

FORMS........................................................................................................47

Federal Forms

        Form SS-4                   Application for Employer Identification
                                    Number ...................................................................
        Form SS-4                   Instructions ............................................................
        Form W-4                    Employee’s Withholding Allowance
                                    Certificate ...............................................................
        Form     I-9                Employment Eligibility Verification ..........................
        Form     W-2                Wage and Tax Statement .........................................
        Form     W-3                Transmittal of Wage and Tax Statements .................
        Form     W-9                Request for Taxpayer Identification
                                    Number and Certification ........................................
        Form 1096                   Annual Summary and Transmittal of U.S.
                                    Information Returns ................................................
        Form 1099-MISC              Miscellaneous Income .............................................
        Form 941                    Employer’s Quarterly Federal Tax Return ................
        Form 940                    Employer’s Annual Federal Unemployment
                                    (FUTA) Tax Return ..................................................
Individual Tax Returns

     Form 1040           U.S. Individual Income Tax Return ..........................
     Form PA 40          Pennsylvania Resident Income Tax Return ..............


Corporate Tax Returns

     Form 1120           U.S. Corporation Income Tax Return .......................
     PA RCT101           Pennsylvania Corporation Tax Report .....................
                            CHAPTER 1




                  YOUR LEGAL ENTITY




Teitelman Rosenthal Block Berg & Company /610-941-1040 /www.block-berg.com
                                   Page 1
                                    CHAPTER 1

                          YOUR LEGAL ENTITY

A significant impact on the way you are protected under the law, and the way
you are affected by income tax rules and regulations is determined by the form
of business entity you use. Each has its own benefits and drawbacks, and
each is treated differently for legal and tax purposes. There are five basic forms
of business organizations:


1. SOLE PROPRIETORSHIP
Sole proprietorship is a business owned and operated by an individual, or by a
husband and wife. This type of business is not considered to be a legal entity
under the law, but rather is an extension of the individual/s who own it. The
owner has possession of the business assets and is directly responsible for the
debts and other liabilities incurred. Income or loss of a sole proprietorship is
combined with the other earnings of an individual for income tax purposes.

Sole proprietorship is perhaps the easiest form of business to own and operate
because it does not require any specific legal organization. Typically a sole
proprietorship does not have any rules or operating regulations under which it
must function except normal requirements such as licenses or permits.

2. PARTNERSHIP
Partnerships can take two legal forms, general or limited.

General partnership is comprised of two or more individuals who agree to run
the business enterprise. A partnership will usually file a fictitious business
name statement to operate a business under the partnership name. Each of
the individual partners has ownership of company assets and responsibility for
liabilities, as well as authority in running the business. Authority of the
partners, and the way in which profit and loss are shared, can be modified by
partnership agreement. Responsibility for liabilities can also be modified by
agreement, but partnership creditors typically have recourse to all the personal
assets of each of the partners for settlement of partnership debts.

Limited partnership is comprised of one or more general partners as well as
one or more limited partners. Limited partners do not take part in running the
business and are not liable for the debts of the partnership. However, if a
limited partner does take part in running the business, they become personally
liable. All the general partners are personally liable.

Rights, responsibilities and obligations of both the limited and general partners
are typically detailed in a partnership agreement. Whether limited or general, it
is a good idea to have a signed agreement for any partnership.




      Teitelman Rosenthal Block Berg & Company /610-941-1040 /www.block-berg.com
                                         Page 2
Partnership is a legal entity recognized under the law, and as such, has rights
and responsibilities in and of itself. A partnership can sign contracts, obtain
trade credit and borrow money. Most creditors require a personal guarantee of
the general partners when dealing with a small partnership.

Both Federal and State Income Tax returns are required of a partnership.
However, a partnership does not generally pay income tax. Partnership income
is allocated to individual partners and each partner reports their share of the
net income or loss on their personal income tax return.

3. CORPORATION
State law grants authority to a corporation to exist as a separate legal entity. A
corporation has all of the legal rights of an individual and is responsible for the
corporation debts, as well as, filing income tax returns and paying taxes on
income from its operations. Typically, owners or shareholders of a corporation
are protected from the liabilities of the business. However, when a corporation
is small, creditors often require personal guarantees of the principal owners
before extending credit. Legal protection afforded the owners of a corporation
can far outweigh the additional expense of starting and administering a
corporation.

Permission from the Secretary of State must be granted in order to use or do
business under a fictitious name. Articles of Incorporation and by-laws must
be adopted and filed, which govern the rights and obligations to shareholders,
directors and officers.

Corporations must file annual income tax returns with the IRS and the
Pennsylvania Department of Revenue as well as other states where appropriate.
The elections made in a corporation’s initial tax returns can have a significant
impact on how the business is taxed in the future.

Incorporating a business allows a number of other advantages, such as the
ease of raising additional capital through the sale of equity or allowing an
individual to sell or transfer their interest. Business continuity is provided as
well when the original owners choose to retire or sell their interests.

Competent legal counsel and business accountants are a significant asset
when deciding to incorporate a business, paying particular attention to special
requirements and unique structure.


4. S CORPORATION
An S Corporation is treated like a regular corporation with one exception; S
Corporations pay no income tax. Net income or loss from S Corporation tax
returns is combined with the other income of the individual stockholder on his
or her personal tax return. These use special rules governing the deductibility
of S Corporation losses.




      Teitelman Rosenthal Block Berg & Company /610-941-1040 /www.block-berg.com
                                         Page 3
                            CHAPTER 2



                 REGISTERING WITH
                THE TAX AUTHORITIES




Teitelman Rosenthal Block Berg & Company /610-941-1040 /www.block-berg.com
                                   Page 5
                                    CHAPTER 2

        REGISTERING WITH THE TAX AUTHORITIES

Complying with extensive tax and information filing requirements of various
governmental agencies is critical. Stiff penalties are commonly assessed if the
required forms and returns are not properly prepared and filed. Several forms
are required when starting a business. While this chapter is not intended to be
an inclusive list of filing requirements, it summarizes some of the pertinent
common requirements. Consult with legal and accounting professionals
experienced in your industry, to insure specific filing requirements will not be
overlooked.



INTERNAL REVENUE SERVICE
All tax forms filed with the Internal Revenue Service require the use of a
Federal Employer Identification Number (FEIN). This number is obtained by
filing a Form SS-4 with the Internal Revenue Service by mail, fax or telephone.
It can also be filed online at the IRS website, www.irs.gov/smallbiz. Form
SS-4 example is in the Exhibit Section.

File Form SS-4 early to obtain your FEIN before you are required to file tax
returns.

Most IRS filings come under the headings of income and payroll taxes. Payroll
tax requirements are detailed in Chapter Four. Income tax filing requirements
and tax planning are discussed in Chapter Six.


BUSINESS LICENSE
Obtain a business license from the city in which your business is located.
Applications can be obtained from City Hall or in some cases online. When
filing, the fee can range from $25 to $25,000, depending on the city and the
size of the business. The license is issued immediately and must be posted in
plain sight at your place of business. License and related fee must generally be
renewed annually.




      Teitelman Rosenthal Block Berg & Company /610-941-1040 /www.block-berg.com
                                         Page 6
TAX CALENDAR
Significant filing dates for a corporation using a calendar year-end are
summarized as follows:

Note: Many of these requirements also apply to partnerships and sole
proprietorships. When a year-end other than December 31st, is used (see
Chapter Five) some of these dates will vary.




   DATE                             RETURNS


   January 31st                     Sales tax return*
                                    Payroll tax returns
                                    Annual Form W-2s issued to employees
                                    Form 1099s issued to payees

   February 28th                    Form W-2s filed with social security
                                    administration
                                    Form 1099s and 1096s filed with IRS

   March 15th                       Corporate income tax returns

   April 15th                       Estimated income tax payments
                                    Individual income tax returns
                                    Partnership & LLC income tax returns

   April 30th                       Quarterly payroll tax returns

   June 15th                        Estimated income tax payments

   July 31st                        Quarterly payroll tax returns

   September 15th                   Estimated income tax payments

   October 31st                     Quarterly payroll tax returns

   November – December              Year-end tax planning

   December 15th                    Estimated income tax payments



When dealing in certain regulated industries, such as utilities or petroleum,
there are also numerous other tax filing deadlines of importance.

* Larger companies may have to file sales tax returns on a monthly, quarterly
  or semi-annual basis.




      Teitelman Rosenthal Block Berg & Company /610-941-1040 /www.block-berg.com
                                         Page 7
New Business Start-up Kit is distributed by
Andrew C. Berg, CPA
Teitelman Rosenthal Block Berg & Company
625 W. Ridge Pike
Building E, Suite 201
Conshohocken, PA 19428

(P) 610-941-1040
(F) 610-941-1232

www.block-berg.com

								
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