Harry F Koester Jr. CPA

Harry F. Koester, Jr. CPA
115 North Dixie Drive, Suite 230
Lake Jackson, TX 77566
Phone: 979-285-0909
Fax: 979-285-0908
hfkoester@sbcglobal.net

INFORMATION FOR NEW BUSINESSES

 

A. Each corporation, partnership or trust must have its own Employer Identification Number; so must each proprietorship that will have employees. A sole proprietorship with no employees is not required to have an Employer Identification Number. To obtain an Employer I.D. no., complete a Form SS-4 and mail it to the IRS. There is also a procedure for obtaining a number via telephone (512-460-7843), see Form SS-4 instructions. The IRS mailing address is:
Internal Revenue Service
Austin, TX 73301

II. The Internal Revenue Service (IRS) toll-free number is 1-800-829-1040.
To order forms the number is 1-800-829-3676 or get Forms and publications via the internet at:
www.irs.gov


III. FEDERAL PAYROLL TAXES www.irs.gov

    A. Obtain from the IRS Circular E, Publication 15, Employer's Tax Guide. It contains instructions
        and withholding tables. Also obtain IRS Publication 539, Employment Taxes.

    B. Payroll taxes withheld plus the employer's 7.65% FICA (6.2% social security + 1.45%
        Medicare) are deposited with your bank using Federal Tax Deposit Coupons (FORM 8109).
        The coupon is marked to indicate the type of tax and the quarter to which it pertains. The
        frequency of deposits depends upon the amount of your payroll tax liability (generally monthly
        for small businesses). See Circular E or instructions to Form 941 for deposit requirements
        and instructions.

    C. Form 941 is filed with the IRS quarterly. It is due on April 30, July 31, October 31, and
        January 31. It reports the federal income tax withheld and FICA tax, employer and employee,
        for the quarter.

    D. Federal tax deposit coupons are used to make quarterly deposits of FUTA (Federal
        Unemployment) taxes on April 30, July 31, October 31, and January 31. A quarterly deposit is
        due if, at the end of the calendar quarter, the cumulative undeposited liability equals $100 or
        more. In 1999 the tax rate is .8% of the first $7,000 of wages paid in the calendar year.

    E. Form 940. Federal Unemployment Tax Return, is filed annually by January 31. It reports the
        FUTA for the calendar year.

     F. W-3. Annual transmittal return that accompanies Forms W-2 to the Social Security
        Administration.

    G. W-2. Annual report of wages and withholding are sent to employees by January 31, and the
        Social Security Administration by February 28, accompanied by Form W-3.

    H. W-4. Employee's withholding allowance certificate. Each new employee must complete a
        W-4 and the employer must keep it in their files. Also, send a copy of Form W-4 to the IRS
        along with Form 941 if the employee claims more than ten (10) exemptions or if his/her wages
        are expected to exceed $200 per week and he/she claims exemption from withholding.

     I. I-9. The U.S. Department of Justice, Immigration and Naturalization Service requires that a
        Form I-9 be completed and kept on file for each employee hired after November 6, 1986. For
        employer information call 1-800-777-7700. The objective is to ensure that illegal aliens are not
        employed.

    J. New Hire Reporting. Within 20 days after hiring a new employee the employer is required to
        report certain information to the state of Texas. Most employers will mail or fax a copy of the
        employee’s completed Form W-4 to: Texas Employer New Hire Reporting Operations Center,
        P. O. Box 149224, Austin, TX 78714-9224, fax number is 1-800-732-5015. For more
        information call 1-888-839-4473. The website address is www.newhire.org/tx. When an
        employee terminates who is having child support withheld, the employer has seven days to
        report this

IV. STATE PAYROLL TAXES www.irs.gov

 

    A. Form C-1, Status Report, is an application for an employer account number. It is filed with the
        Texas Workforce Commission (TWC), Austin, Texas 78778, usually with the first Form C-3.
        The TWC's local telephone number is 265-8111. You can complete Forms C-1 and C-3 online
        at www.texasworkforce.com or www.twc.state.tx.us

.
    B. Form C-3. Quarterly report is filed with the TWC on April 30, July 31, October 31, and January
        31. This form is used to calculate your state unemployment tax which in 1990 equals your tax
        rate applied to the first $9,000 of wages paid to each employee in the calendar year. The
        minimum initial TWC rate is 2.7%. The actual initial rate is dependent upon the
        unemployment rate in your industry.

V. EMPLOYEE EARNINGS RECORDS
In order to comply with the federal and state payroll tax and reporting requirements (See III and IV), it is necessary to maintain a detail record of all wages paid to each employee and the related taxes withheld each calendar year. The form used for this should provide for monthly, quarterly and annual totals.

VI. LABOR LAW
As an employer you are subject to various federal labor laws minimum wage, overtime and labor practices. Contact the U.S. Department of Labor for information. The Texas Workforce Commission administers labor law in Texas. You can contact them at: 1-800-832-9394 or visit their website at www.texasworkforce.org. The U.S. Department of Labor may be accessed @ www.dol.gov

their website has information regarding federal overtime law, etc.


VII. WORKER'S COMPENSATION INSURANCE
http://www.iii.org/individuals/business/basics/workerscomp/

This is necessary to protect the employer from liability if an employee or possibly a contract laborer is injured while working. Contact your property and casualty insurance agent for information.  If you do not have workers' compensation insurance, this must be reported to Texas Department of Insuance on Form DWC Form - 005.

VIII. SALES TAX
Texas Comptroller of Public Accounts http://www.window.state.tx.us/taxinfo/sales/

The Texas Limited Sales Tax is basically levied upon the sale to or rental by the end consumer of tangible personal property in Texas. Additionally some services are now taxable. There are, of course, many exceptions, special rules and complexities. In order to collect Texas Sales Tax or purchase items free of tax, you must obtain a Texas Limited Sales Tax Permit. To do this, call the State Comptroller's office to arrange for a meeting with a sales tax representative. The toll-free telephone number is 1-800-252-5555.

You will have to file returns and remit taxes collected either monthly, quarterly or annually depending on anticipated volume.

IX. THE U.S. SMALL BUSINESS ADMINISTRATION (SBA) www.sba.gov

The SBA helps small businesses obtain loans and distributes various publications to assist and inform small businesses. For information write or call:

U.S. Small Business Administration
2525 Murworth
Houston, Texas 77054

Telephone No. is (713)660-4400 or 1-800-368-5855

The SBA has much information on their website www.business.gov

X. INCOME TAX
Business structures (sole proprietorship, partnerships, corporations, LLC, etc.
IRS--business structures (Internal Revenue Service) www.irs.gov

SBA--business structures (Small Business Administration) www.sba.gov

A. Sole Proprietors
    1. Report taxable income from their business on Schedule C which is attached to their individual
        income tax return, Form 1040. The net earnings or loss is added to or subtracted from other
        taxable income for the year.

    2. May be subject to paying estimated income tax in quarterly installments using Form 1040ES
        due April 15, June 15, September 15 and January 15.

    3. Are subject to self-employment tax. Self-employed persons, partners and members of limited
        liabilities companies generally must pay self-employment tax on their net earnings from self-
        employment. This tax is the self-employed person's social security tax. The rate is equal to
        the combined employer and employee rates. The 1996 rate is 12.4% of net earnings from self-
        employment up to a maximum of $62,700 self-employment income plus 2.9% on all net
        earnings from self-employment.

        One-half of this is deductible from federal taxable income. This tax is calculated annually on
        Schedule SE (an attachment to Form 1040) and is added to individual income tax.


B. Corporations http://www.irs.gov/businesses/small/article/0,,id=98359,00.html

    1. Deposit their income taxes quarterly, based upon their fiscal year. Federal tax deposit
        coupons are used.

    2. File an annual income tax return, Form 1120. Form 1120 is due on the 15th day of the third
        month after the corporation's fiscal year end.

C. S Corporations http://www.irs.gov/businesses/small/article/0,,id=98359,00.html

Small Business Corporations are legally corporations but, generally, are free from income tax. Basically, their net income is taxed to the shareholders personally.

They file an annual return on Form 1120S, due on the 15th day of the third month after the corporation's fiscal year end (usually December 31). As part of this return, Schedules K-1 are prepared. The K-1 informs each shareholder of his reportable share of income, loss, credits or special deductions.

D. Partnerships http://www.irs.gov/businesses/small/article/0,,id=98359,00.html

Partnerships are very similar to S corporations for income tax purposes. They pay no income tax. They file an annual return, Form 1065, due on the 15th day of the fourth month after the partnership's fiscal year-end (almost always December 31). Schedules K-1 are prepared and given to each partner.

E. Limited Liability Companies (LC or LLC)
http://www.irs.gov/businesses/small/article/0,,id=98359,00.html

Though relatively new, they are becoming very popular. They offer legal liability protection similar to a corporation but are taxed like a partnership They file an annual return, Form 1065, due on the 15th day of the fourth month after the fiscal year end (almost always December 31). Schedules K-1 are prepared and given to each member (owner).

XI. INSURANCE http://www.iii.org/smallbusiness/intro/

Insurance is the contractual transfer of risk from the insured to the insurance company for a fee (premium). As a small business person, you must very carefully assess how much risk to transfer to insurers. In order to evaluate this situation, you will need the advice of a competent advisor(s). Following are some of the general types of insurance which are commonly purchased to transfer risk.

A. Health/medical

B. Disability

C. Life

D. Liability - General & automobile

E. Property

F. Flood

G. Worker's Compensation (See VI)
http://www.iii.org/individuals/business/basics/workerscomp/

H. Business interruption

I urge you to discuss each of the foregoing with your insurance agents.

XII. PROFESSIONALS TO ASSIST YOU
As a small business person, you will not have expertise in all areas of the business environment. Until you grow quite large, you will not be able to hire in-house expertise in many areas. Consequently, if you are prudent, you will enlist the aid and expertise of the following professionals.

A. CPA

B. Banker

C. Attorney

D. Life & health insurance agent

E. Property & casualty insurance agent

Tax Guide for Small Businesses, Publication 334, is available free of charge from the IRS. It contains much useful information regarding income, payroll and self-employment taxes. It also contains an extensive list of other available IRS publications. Call the IRS at 1-800-829-3676.

XIV. ASSUMED NAME CERTIFICATE
An Assumed Name Certificate must be filed with the county clerk for each county in which your business will operate under a name other than its true legal name. This is a simple form that you can complete yourself. The form is on the County Clerk’s website: www.brazoria.tx.us.landata.com

Each corporation, limited liability company (LLC or LC), and certain limited partnerships chartered in Texas or doing business in Texas is required to file a franchise tax report with the State Comptroller each year. The report is due on May 15. Also, each corporation or LLC chartered in Texas must file a first year report on the anniversary of receiving their charter. The Comptroller will mail the necessary forms to the corporation's registered agent. The current annual tax rate is 4.5% of taxable income or .25% of taxable capital whichever is greater with no minimum.

Beginning in 2008, based upon income earned in 2007, the franchise tax will be replaced with the new Texas Margin Tax. The tax rate will generally be 1% of revenue minus the greater of either cost of goods sold, salaries and wages, or 70% of revenue. Entities with less than $300,000 in revenue or less than $1,000 in margin tax will owe no tax; but must still file an annual return.


XVI. SMALL BUSINESS DEVELOPMENT CENTER
Brazosport College sponsors an SBA enfranchised small business assistance program. Dr. Janice L. Goines is the Director. For information call 230-3380 or visit www.brazosport.edu/sbdc.

XVII. THE ECONOMIC DEVELOPMENT ALLIANCE FOR BRAZORIA COUNTY
The Alliance is an non-profit organization. The Alliance’s objective is to promote economic development in Brazoria County. To contact The Alliance call 979-848-0560. www.eda-bc.com

If you purchase or sell a group of assets after 5/6/86 which constitute a trade or business, you must file a Form 8594. This Form is filed with your income tax return in the year the purchase/sale occurs. The purpose of the form is to report to the IRS the allocation of the sales price to the assets acquired.

XIX. CONTRACT LABOR

Many small businesses get themselves in trouble (i.e. onerous penalties and interest) because they treat an employee as if he were an independent contractor. Generally, an independent contractor is engaged in their own trade or business, own their own tools, books or equipment, and offer their services to more than one customer. An employee is someone who is controlled and directed by their employer. For example: a house painter who has his own tools and insurance and works for many "employers" each year is an independent contractor, but a painter who works for an hourly wage or a per job wage under the direction of a contractor is an employee. The IRS has published a list of 20 factors to consider in determining whether someone is an employee or an independent contractor. The IRS will issue a ruling as to whether a described relationship is that of employer/employee or contractor/customer (Form SS-8).

XX. TEXAS DEPARTMENT OF COMMERCE http://www.commerce.gov/states/texas.html

Provides information on the regulatory requirements necessary to operate a business in Texas. Their address is:
TEXAS DEPARTMENT OF COMMERCE
Office of Business Permit Assistance
P.O. Box 12728
Austin, TX 78711 (800) 888-0511

XXII. THE INTERNET www.google.com

Much information is available on the internet. Virtually all government agencies have web sites with forms and other information.

XXIII. MINUTES

It is very important that corporations keep timely and accurate minutes of Board of Directors and Shareholders meetings. I have a memo that addresses what should be covered in the minutes; let me know if you would like a copy.