GOVERNMENT OFFICES THAT MAY BE OF ASSISTANCE TO YOU:
||Erie County Government County Clerk’s Office 858-7467
25 Delaware Avenue
Kenmore, NY 14217
SBDC– Small Businesses Development Center 878-4030
Buffalo State College, Cleveland Hall 206
1300 Elmwood Avenue
Buffalo, NY 14222
SCORE- Counselors To America’s Small Businesses 551-4301
111 West Huron Street, Room 1311
Buffalo, NY 14202
NYS Tax ID # - 1-800-462-8100
State Department of Licenses (Permit Team) - 1-800-342-3464
License Office - City Hall - 851-4951
Permit Office - City Hall - 851-492
STEPS FOR START-UPS
DECIDE LEGAL STRUCTURE AND FILE NECESSARY PAPERWORK
Sole Proprietorships – Purchase four Business Certificates (DBA forms) for forms with notarized signature should be files with the County Clerk’s Office.
Partnership – Purchase four Business Certificates for a partnership at any business or legal stationary store. Completed forms with notarized signatures should be filed with the County Clerks office.
Corporation – Forms to incorporate are available at any business or legal stationary store and should be filed with the Secretary of State in Albany. It is advisable to have a lawyer prepare and file the necessary documentation for you. Consider a Chapter “S” Corporation.
- Sale Tax I.D. Number – Contact the New York State Department of Taxation and Finance (1-800-462-8100) and ask for a State Tax Kit.
- Permits and Licenses required in New York State – Contact The Office of Business Permits and Regulatory Assistance (OBPRA) (1-800-3423464) And ask for a Permit Assistance Kit.
- Federal Taxes and Federal Employer Identification Number (EIN) if you are forming a corporation or a partnership, or if you plan to hire employees you must file for an EIN (IRS form SS-4). If you are a sole – proprietorship with no employees you may use your own social security number on federal tax forms. Stop at your local IRS office or call 1-800-829-1040 for appropriate paperwork.
- Local Licenses and Permits – Contact City Hall (851-4955) Advise that you will be doing business in Buffalo and what are the requirements. If you plan to operate a business in your home you must also check to be sure you are not in violation of the local zoning ordinance.
- Open a business checking account – Maintain a business Checking account separate from you’re your personnel account. The bank will require a stamped business certificate or a copy of your DBA or incorporation papers with your corporate seal affixed.
- Arrange for a business phone line to be installed – In most cases a deposit will charge. By doing this you will also be entitled to a business listing in the Yellow Pages. If someone is not available to answer the phone consider an answering service or at least an answering machine. Remember to check out the cost of all your utilities deposits.
- Produce a business plan to outline your business goals and Objectives. Describe what will be necessary to accomplish them. Major components of the plan should at least include the following:
- Business Description and objectives – should be Quantifiable such as: money in sales, number of clients, and percent of market.
- Marketing Plan – Target Market, advertising, public Relations, competition analysis (strengths and weaknesses).
- Personnel –Resumes of all key people, job descriptions.
- Financial Information – Start-up costs, cash flow projections.
Keep operating cash as a “cash cushion’ on hand for Emergencies. Enough reserves for three to six months worth of expenses should be sufficient.
*Send announcements of your business Start-up to the media, potential customers and to your friends.
||If you plan to conduct a business under a name other than your own, such as a trade name or an assumed name (DBA, Doing Business As), you must register that name with the County Clerk of the County where your business is located.TO REGISTER:
- 1. Purchase of “Certificate of Business”
“Business Certificate for sole proprietor”- owned by one person OR
“Business Certificate for Partners” – for more than one owner.
These forms are available at legal stationery or office supply stores such as Paper Cutter, Paper Factory, Office Max, etc.
- It will be necessary to purchase and complete three (3) forms. It is Suggested that forms be notarized before going to clerk’s office. (Notaries are available in all banks)
- File the original with the County Clerk who, on request, will certify The other two copies. One copy is used for a business bank account and the other for your business records. Extra copies can be obtained later, if needed.
- Filing fees are as follow: original form - $25.00 Certified copies - CHECK WITH YOUR COUNTY CLERK.
Filing by Mail: Send completed, notarized forms to the County County Clerk’s Office (note correct addresses below), with a money order made payable as indicated. (Personal checks accepted).
County of Erie
County Clerk's Office
25 Delaware Avenue
Buffalo, New York 14202
|County of Niagara
County Clerk's Office
175 Holly Street
Lockport, New York 14094
CHOOSING YOUR FORM OF BUSINESS ORGANIZATION
One of the most important decisions you will make is how to set up the business as a:
- Sole Proprietorship
||Remember, however, that unless you are independently wealthy, the small business owner risks it all, no matter what form or organization. Most home-based businesses are sole proprietorships or partnerships. A comparison of the advantages and disadvantages of each follows:
THE FORMING OF A BUSINESS ORGANIZATION DEPENDS ON Legal Restriction Kind of business operation Need for capital Tax advantages or disadvantages Liabilities assumed intended division of earnings Perpetuation of the business Number of people associated in the value.
Sole Proprietorship: This is the least costly way of starting a Business. You simply register your business with the county and start up.
Advantages: Easiest to get started / Greatest freedom of action / Maximum authority / Income tax advantage / Social security advantage
Disadvantages: Unlimited liability / Death or illness endangers business / Growth limited to personal energies
Partnership: You can for a partnership simply by making oral or written agreement between two or more persons. You would be wise to consult an attorney to have a partnership agreement drawn up and to handle any other necessary paperwork.
Advantages: Two heads are better than one / Additional sources of venture capitol / Better credit rating than corporation of similar size
Disadvantages: Death, withdrawal, or bankruptcy of one partner affects business / Difficult to get rid of bad partner / Hazy lines of authority
Corporation: A corporation is a separate legal entity, which you (and others) own. You may think a small family corporation does not need an attorney, but an attorney can save member of a family corporation from hard feelings and family squabbles. The corporation form is usually the most costly to organize.
Advantages: Limited liability for stockholders / Continuity / Transfer sales / Easier to raise capitol / Possibility to separate business / Functions into different corporations
Disadvantages: Gives owner false sense of security / Heavier taxes / Power limited by charter / Less freedom of activity / Legal formalitites / Expensive
CONTROL OF THE BUSINESS
Sole Proprietorship: You have absolute authority over all business decisions.
Partnership: Control of the business is shared with your partners – a situation or arrangement that ma lead to disputes. However, you are still responsible for your partner’s business actions, as well as your own.
Corporation: Control is exercised through regular Board of Directors’ meetings. Records must be kept on document decisions made by the Board of Directors, Small closely help corporation can operate more informally, but record keeping cannot be eliminated entirely. Officers of a corporation can be liable to stockholders for improper action.
Sole Proprietorship or Partnership: All net income is taxable to the individual according to each partner’s share ownership.
Corporation: There are two ways to tax a corporation; as a straight corporation or as a Subchapter S Corporation. A Subchapter S corporation is taxed in much the same way as a partnership, and does not incur income tax liability at the corporate level
CONTINUITY OF THE BUSINESS
Sole Proprietorship: If you are disabled, the business will falter unless family, friends, or employees are willing and able to substitute for you. Death of a sole praetor means the end of the business, but heirs can inherit the assists of the business. Your heirs can start a new business using the same address and location, providing your creditors are paid.
Partnership: If one partner is disabled, the other may be able to fill I until the disable partner recovers. One partner cannot sell his/her share in a partnership without getting the consent of the other partner(s). Death dissolves a partnership automatically. Heirs for a partner inherit his/her share of the partnership assets. Without a partnership agreement the heirs often have to sue to enforce their legal rights.
Corporation: A corporation is a separate legal entity. Its existence is not affected by death or disability of shareholders. Share of stock can be sold of one owner wants to leave the business. On the death of a shareholder, the stock goes to the shareholder’s heir.
PERSONAL LIABILITY OF OWNERS
Sole Proprietorship: All personal assets are available to creditors to satisfy claims against you. Generally this does not mean creditors can sell your home if it jointly owned with a spouse, as your spouse is not liable for your business debts.
Partnership: If one partner is disabled, the other may be able to fill in until the disabled partner recovers. One partner cannot sell his/her share in a partnership without getting the consent of the other partner(s). Death dissolves a partnership automatically. Heirs for a partner inherit his/her share of the partnership assets. Without a partnership agreement the heirs often have to sue to enforce their legal rights.
Corporation: A corporation is a separate legal entity. Its existence is not affected by death or disability of shareholders. Share of stock can be sold if one owner wants to leave the business. On the death of a shareholder, the stock goes to the shareholder’s heir.
HOW BUSINESSES ARE TAXED AT THE FEDERAL & STATE LEVELS
- Sole Proprietor - Federal – form 1040, Sch C, and Sch SE NYS – IT 201, Plus copy of Sch C from Federal return.
- Partnerships: Federal – Form 1120, W-2 and/or 1065, Sch K – 1 to form 1040 NYS – IT 204, attach Federal Form 1065, Sch K – 1’s and all other supporting documents.
- Corporation: Federal - Form 1120, W-2 and/or 1099 Div to Form 1040 NYS – FORM CT 3 OR CT 4.
- S Corporation: Federal – Form 1120S, W – 2 and/or Sch K – 1 to form 1040 NYS –Form CT 3S or CT 4S.
Limited Liability Company (LLC) or Limited Liability Partnership (LLP) Federal – Depending on the circumstances, may be taxed as A, B, C (above) NYS – same as Federal.
WHO NEEDS A FEDERAL TAX IDENTIFICATION NUMBER – FORM SS – 4
- Sole Proprietor – Required when: hiring employees; withholding Federal Income taxes on non-wage income to a nonresident alien; have a filing requirement for alcohol, tobacco, firearm or Keogh plan.
- Partnership – required
- Corporation – required
- S Corporation – required
- LLC – depends on how entity is taxed; LLP – require
WHO NEEDS A NYS SALES TAX ID NUMBER – FORM DTF – 17
||If your new business in New York State sells taxable goods and/or services to people in state, or if you want to accept sales tax exemption certifications, then your business must apply for a sales tax identification number. In order to meet this requirement, an owner or representative should fill out form DTF – 17, Application for Registration as a Sales Tax Vendor. More information on sales and use tax can be found in Publication 750, A Guide To Sales Tax In New York State.NOTE: This is not all-inclusive. You may be required to attach additional schedules and/or forms to your tax return.
NEW YORK STATE SALES TAX
Sales of tangible personal property and some services are subject to NYS Sales Tax.
Taxable services include: repairing property, landscaping, painting, general repairs of real property, faxing service, sale of a pet, video taping, cleaning or maintenance services, sale of food or drink in or by a restaurant. Those who provide Internet services should contact NYS Sales Tax at 1-800-972-1233 for the taxable consequences of their particular service.
You cannot legally begin to do business until you receive your certificate of authority.
You must use the accrual method of accounting in collecting and paying sales tax.
Due Dates for filing Quarterly Returns:
December 1st - February 28th (29th)
March 1st - May 31st
June 1st - August 31st
September 1st - November 30th
After filing four quarterly returns, first time vendors who collect less than $3000 in sales tax for the tear will be given the option to file an annual return. New York State will notify you if you qualify for this option.
The dollar amount of taxable sales and the amount of sales tax charged must be stated separately on each invoice.
You cannot compute sales tax on each item separately. Ring up all of the taxable items per customer.
You must keep your records for a minimum of three years from the due date of the return (or date filed whichever is later).
||A calendar year is 12 consecutive months beginning January 1st and ending December 31st.
A fiscal year is 12 consecutive months ending on the last day of any month other than December, or a 52 – 53 week year.
If you operate a business as a sole proprietor, the tax year for your business must be the same as your individual tax year. Special rules apply to S corporations and partnerships.
First-time filer – If you have never filed an income tax return, you
Can choose either a calendar year or a fiscal tax year. You must choose a tax year by the time set by law, not including extensions, for filing your first return. You must use the calendar year if you have inadequate records or you have no accounting period, or your annual accounting period, or your annual accounting period does not qualify as a fiscal year.
Changing your tax year – Once you have chosen your tax year, you may have to get permission from the IRS to change it. To do this, file Form 1128 and pay a fee. For more information, see IRS Publication 538, Accounting Periods and Methods.
SELF - EMPLOYMENT TAX
||Self-employment individuals pay self-employment tax in place of the social security and Medicare taxes withheld from employees wages. If you have net earnings of $400 or more of self-employment income, you are subject to this tax.
The combined social security and Medicare rate for this tax is 15.3%. The first $68, 400 of your 1998 net self-employment income was subject to the 12.4% social security tax rate. For 1999, this amount increases to $72,600. There is no limit on wages subject to the 2.9% Medicare portion of the tax.
Self-employment tax is computed on Schedule SE, which is attached to Form 1040. Remember to take this tax into account when you calculate your federal estimated taxes each quarter.
Sole proprietors and general partners are subject to self-employment tax.
||Estimated taxes are based on the estimated income and expenses for the year. Taxes owed include not only income tax but also self-employment tax on the federal return. If you are married and file a joint return, look at the total taxes owed by the family.
Normally, you pay ¼ of the total on a quarterly basis (April 15, June 15, September 15, & January 15) using the vouchers located on IRS Form 1040ES and NYS Form IT 2105.
Estimated tax rules vary from person to person. Our staff will sit down with you and discuss your particular situation.
NOTE: If the quarterly dates fall on a weekend or holiday it moves to the next business day
ORDINARY AND NECESSARY BUSINESS EXPENSES
- Sole proprietors, partnerships, and corporations can deduct ordinary and necessary expenses paid or incurred during the tax year in carrying on any trade or business. The mere fact that an expense was paid or incurred in carrying on a trade or business doesn’t entitle you to a deduction. A deductible expense must be an ordinary and necessary expense of carrying on your trade or business.
- An ordinary expense is one, which is customary or usual. This does not mean customary or usual within your experience, but rather, customary or usual within the experience of a particular trade, industry or community. Therefore, it is possible for an expense to qualify as ordinary even though it is the first and only time that you incur it. An expense is ordinary if it’s customary or usual in your business, but an unusual expense may be ordinary if it is reasonably related to your trade or business.
- A necessary expense is one that is appropriate and helpful, rather than necessarily essential to your business. Usually, your judgment as to what is a necessary expenditure in your trade or business will be acceptable. A necessary expense is one that is appropriate and helpful in developing and maintaining your business. It need not be essential or indispensable.
- Certain courts have held that an expense must not only be ordinary and necessary in order to be deductible, but that it must also be reasonable in amount and reasonable in relation to its purpose.
- Expenditures are deductible as ordinary and necessary even though they turn out to have been unwise.
To be deductible as a business expense, an item must be incurred in connection with a trade or business. The item must be directly connected with or pertaining to a trade or business carried on by you. A trade or business need not be your principal occupation; a sideline can qualify. A deductible expense must be an expense of your own business. Expenses incurred on another’s behalf are not deductible.
||An accounting method is a set of rules used to determine when and how to report income and expenses in your books and on your income tax returns. The two basic accounting methods are the Cash methods and the Accrual Methods. For other methods, see IRS Publication 538, Accounting Periods and Methods.
Under the Cash Method, you report income you receive during the year
You usually deduct expenses in the tax year you pay them.
Under the Accrual Method, you generally report income when you earn it, though
You may receive payment in a later year. You deduct expenses in the tax year
You incur them, whether or not you pay them in the same year.
GROSS BUSINESS INCOME
Gross Business Income includes all taxable income from whatever source derived. For a business, this consists of the total gross receipts, including the receipt of property as well as money. In the course of your business, if you perform work under a contract that allows you to remove and keep certain used equipment, its fair market value is included in your gross business income.
Gross Business Income also can include interest, rents, royalties, and dividends. Barter is the swapping of goods and services. It is taxable to each party involved in the swap to the extent of the fair market value of the goods or services received. Thus, a business that accepts goods and services from clients in exchange for the businesses services has to include the goods and services in income at the normal retail price, not at a discounted value based on the clients’ inability to pay cash.
Here’s an example of a bartering transaction that produces gross income:
ILLUSTRATION: A lawyer performed personal legal services for a house painter, in return the painter painted the lawyer’s home. The lawyer and painter must each include in income the fair market value of the services received from the other
COMMON BUSINESS DEDUCTIONS
REMEMBER - All of the deductions listed are subject to restrictions as to when, how, and if they can be taken! Follow these general guidelines:
- CONNECTED TO YOUR TRADE OR BUSINESS
PROVE EACH DEDUCTION BY KEEPING ALL RECEIPTS FOR EACH TRANSACTION:
Accounting / Advertising / Amortization / Bad Debts / Business / Gifts / Car & Truck / Commissions / Dues / Educational / Expenses / Electricity / Employee Pension Plans / Employee Benefit Plans / Entertainment / Excise Taxes / Fees / Franchise Payments / Heat / Home / Import Duties / Interest / Inventory / Legal / Licenses / Machinery / Mailing / Maintenance / Meals / Office Furniture / Office Equipment / Office Supplies / Rent, Utilities, Repairs / Repayment / Royalty Payments / Subscriptions / Tax Preparation Fees / Taxes / Telephone / Travel
RULES OF RECORDKEEPING
- keep business records (written or computer) without supporting documents, such as invoices, receipts, etc. Be able to support those entries. Show the world those entries didn’t come from thin air!
- Write a check to an individual without other supporting documentation. As far as the IRS knows, that check could be for your Aunt Tillie’s small dog’s new 14K gold stud collar you’ve been promising her for the last 10 years.
- Think there’s an allowable magic business percentage for business use of a car. It just doesn’t exist.
- Wait to write business records two years from when they occurred. It’s really hard to remember from one year to the next. Your mind is fresh when you do it in the current year on a regular basis.
- Try to live off tax money (payroll and/or sales tax).
- Keep a separate bank account for your business expenses.
- Get a banking service that gives you the cancelled checks.
- Keep the statements that show your credit card business purchases. The credit card bill will not work alone.
- Keep an accurate record of business mileage whether you use the standard mileage rate or actual expenses.
- Keep the odometer reading from your car or truck used for business along with your record log.
- Keep business contacts as supporting documents (especially when using or receiving cash).
||Doing Business As (DBA), Partnership
Discontinue: No Fee
File or Amend Certificate [Cash, approved check or money order]: $25.00
Certified Copies (usually 2): $6.00 each if copy needs to be made
$5.00 if document is presented
Certificates - Non-Court, other than otherwise covered: $20.00
Court Records - Other than otherwise covered: $4.00
Certify prepared copy: $5.00 (includes $1.00 fee to copy cover page)
Copy/certify court document: $5.00
Copy of military discharge to veteran or family: No Fee
Copy recorded documents: $1.00 per page
$1 each for first two pages of document, $.50 for each additional page
Copy of map: $2.00 per page
Prepare and certify: $1.00 per page; $4.00 per certification
U.C.C. - copies: $5.00
Any instrument (except under an Index Number; including separation agreement, mortgage tax affidavit, certificate of dissolution of marriage): $5.00
Building loan contract: $25.00 ($5.00 to amend, assign, discharge, release)
Notice of lending: $15.00
Information provided by www.erie.gov