CPA Practice Advisor

AUG 2015

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FEATURE August 2015 • www.CPAPracticeAdvisor.com 19 S t a r t i n g a b u s i n e s s s o u n d s simple – take your idea, get a federal ID number and a bank account, and you're ready to go. Unfortunately, that level of simplicity is a myth. Tere are many com- plexities and nuances when creating a busi- ness at the federal, state, and local levels. Each state has its own set of rules and regulations and no two are alike. Non-compliance can saddle a new business owner with fees and penal- ties that could have been avoided with knowledge of the requirements. In this article, we ofer insight on the v a r y i ng re g u l at ion s t h roug hout New Jersey, New York, New York Cit y, Pennsylvania, and Philadel- ph ia w it h a foc us on t he l i m ited liability company (LLC) structure. T he f i rst t h i ngs a prospec t ive business owner needs to do is apply for a federal identifcation number u si ng for m SS - 4, f i le A r t icles of Organization with the Department o f S t a t e a n d c o m p l y w i t h a n y required employment tax return fl- i n g s . I f you're goi n g to c re ate a mu l t i - me m b e r L L C , h a v i n g a n Operating Agreement drawn up is also strongly recommended. This internal document lays out the rights, dut ies, l iabi l it ies a nd obl igat ions between the members and the LLC – a very important item to have. New Jersey A l l l i m it e d l i a bi l it y c om pa n ie s formed in New Jersey, or fling to do business in New Jersey, must f irst determine if the business name is ava i lable a nd t hen f i le for mat ion documents to register and receive a Certifcate of Formation. To register for ta x a nd employer pu r poses a NJ-R EG must be completed and, to ensure the continued use of your business name, an annual report fling must be completed for a small fee. Income taxes will be reported on your individual tax return whether you are a single or multi-member LLC, but there is an additional fling of For m 10 65 i f you a re a mu lt i- member LLC. If you employ at least one person, you will need to review the rules for employer and workers' c omp i n s u r a nc e . Depend i ng on where your business is located and what t y pe of industr y you are in, there could be additional local per- mits, business licenses, certifcates, registrations and/or sales and use tax flings to comply with. Be sure to check with your own state govern- ment to get t he speci f ic r u les for starting a business in your state. New York To form an LLC in New York you need to be a New York resident and/ or have a busi ness ent it y i n New Yo r k S t a t e a n d f i l e A r t i c l e s o f Organization with the Department of State. New York LLCs are also requ i red to update t hei r contac t i n for m at ion e ver y t wo ye a r s by fling a Biennial Statement with the New York Department of State. Income tax treatment is similar to that of New Jersey, being reported on your personal tax return with an additional fling of Form IT-204 if you are a multi-member LLC. If you have employees, the business w ill need to register with the New York D e p a r t m e n t o f L a b o r a n d b e mindful of any flings and/or pay- ments for w it h hold i ng ta xes a nd wage reporting as well as unemploy- ment, workers' compensation, dis- ability and health insurance. Depending on the t y pe of busi - ness, you may be required to register as a New York State Sales Tax Vendor, apply to the New York Department of Taxation and Finance for a sales ta x Cer t i f icate of Aut hor it y, a nd comply with any required sales tax flings. New York has a voluminous list of business types that are required to apply for additional licenses and/ or permits, which all new business owners should review. New York City business owners beware – the city may have separate registrations for these items! Addi- tionally, if you conduct business in N YC you may be subject to the New York City Unincorporated Business Tax which is fled on Form N YC-202 along with your personal tax return. Pennsylvania A n LLC operating in the state of Pennsylvania must fle Form 8913 – Orga n i z at ion Domest ic L i m ited Liability Company and Docketing Statement with the state. LLCs must register under a business name that is not already in use, and determine whether or not the name of the busi- ness is considered a fctitious name. A f ictitious name can be reg is- tered by complet i ng For m 311 – Application for Registration of Ficti- tious Name; the name is required to be adver t i sed i n a new s paper of general circulation in the county in which the business will be located. A newly formed LLC is required to complete the Pennsylvania Enter- prise Registration Form (PA-100) a nd f i l e w i t h t he Pe n n s y l v a n i a Department of Revenue, which will a l l o w t h e e n t i t y t o e s t a b l i s h employer withholding, unemploy- ment compensation insurance, and sales and use tax accounts. Te state of Pennsylvania has a 6% sa les ta x rate, a nd t here is a n additional 2% local sales and use tax for purchases made in Philadelphia a nd a si m i la r loc a l t a x of 1% for A llegheny County. Use tax liabilities are reported on the PA-1 Use Ta x R e t u r n . A n L L C re por t i n g a s a pa r t ner sh ip i s requ i red to f i le a PA-20S/PA-65 Information Return, and provide each resident and non- resident member a PA Sc hedu le R K-1 or N R K-1 to repor t income taxes on their individual tax returns. LLCs doing business in the state of Pennsylvania are also subject to a capital stock/foreign franchise tax. Philadelphia Businesses operating in Philadelphia must have a Commercial Activ it y License f rom t he Depa r t ment of Licenses and Inspections. In order to obtain the Commercial Activity License, a business must frst obtain a City of Philadelphia Tax Account Number, which requires a Federal EIN and Pennsylvania State Sales & Use Tax Number, both of which are a lso prerequisites for obtaining a Commercial Activity License. A n L LC doi ng busi ness i n t he City of Philadelphia is required to fle a Business Income & Receipts Tax (BIRT) Return, which is com- puted based on the gross receipts and net income, and a Net Proft Tax R et u r n. I n add it ion to State a nd Federa l pay rol l w it h hold i ng , a n employer who pays wages to resi- dents of the city of Philadelphia, or a non-resident working in the city, mu st w it h hold a nd rem it a Cit y Wage Tax. Based on the location and i nd u s t r y i n w h ic h t he b u s i ne s s operates, there are various state and local business licenses and permits which must also be obtained. In conclusion, one should seek c ompetent t a x ad v ic e to s t ay i n c o m p l i a n c e w i t h t h e l a w s t h a t govern their business in the states in which they will operate. Lauren Reo, CPA is Tax Manager and Ryan Pederson, CPA is Audit Senior at WeiserMazars LLC. EACH STATE HAS ITS OWN SET OF RULES AND REGULATIONS AND NO TWO ARE ALIKE.

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