See that line outside the door? They aren’t waiting to buy tickets to a Ghostface Killah concert, nor are they waiting for the new iPhone. Those are clients. (Okay, the line is imaginary - but your business is booming). At a certain point, you’ll have to give in and hire support staff. However, it’s not as simple as putting up a job ad — there are a number of bureaucratic tasks that must first be completed.
Today’s topic is taxes. Note that there are also other steps you’ll have to take, like verifying a worker’s eligibility (form I-9), obtaining worker’s compensation insurance, setting up an accounting and payroll system, and dealing with your own state’s regulations for employers. However, for the tax man, and specifically the IRS, these are the steps you’ll have to take:
- Obtain an Employer Identification Number (EIN)
There isn't much to say about an EIN. It's basically the employer's equivalent of a social security number and is used to track your taxes and other documentation with the IRS and federal and state governments. You can apply for this online, at the IRS website.
- Taxes and Recordkeeping
This is where that accounting and payroll system will pay for itself. According to the IRS, you are required to maintain tax information for at least the prior four years. In addition, you'll have to handle tax withholding, W-2 forms for the employee and governments, and file your own taxes.
- Quarterly Tax Filings
Employees or not, you'll have to pay estimated taxes quarterly. If you're solo, you have to estimate the self-employment tax. If you are required to withhold federal income, Medicare, and Social Security taxes, you'll need to file IRS Form 941 quarterly.
Is this making your brain hurt? Ours too. Don't despair. Taxes are a lot like learning a new practice area -- once you've worked through it once or twice, it pretty much becomes second nature. Plus, with the right accounting software (or CPA), a lot of this is automated.
- 5 Things You May Be Able to Deduct From Your Firm's Tax Bill (FindLaw's Strategist)
- Small Firm Startup: Income and Self-Employment Taxes (FindLaw's Strategist)
- A 'Taxing' Way to Get Back at Deadbeat Clients (FindLaw's Strategist)