Join Dana Robinson for an in-depth discussion in this video Understanding state and local taxes, part of Setting Up Your Small Business as a Legal Entity.
- An important consideration when forming an entity is to be sure you consider state and local filings. Most states have some sort of tax regimes for corporations and LLCs. Some states only require a business license or an annual renewal. Other states, notably California, charges an 800 per year minimum tax on any pass through entity in the state. Most state tax authorities send you appropriate information after you file your corporation papers. Typical taxes, licenses, and filings that may be levied by a state include the following, state tax, sales tax, use tax, and business licenses.
Most states require an annual renewal filing for the corporate entity and a fee ranging from 20 dollars to 200 dollars in order to maintain the active status of the entity. Failure to file this and pay the fee normally creates a large penal fee that must be paid for a late filing. If an entity fails to pay an annual fee for more than a certain amount of time, then the corporate entity is eventually abandoned. In addition to state filings and fees, most local municipalities have a fee. Each city has the right to require that businesses registered for a business license or a permit for doing business within the city boundaries.
Thus, most cities issue business licenses to businesses within its borders. The business license is simply a way for the city to collect a small tax from local businesses. San Diego, as an example, charges 34 dollars for businesses with fewer than 12 employees and 125 dollars for larger ones. Whatever the city you are in, you will need to fill out that city's business license form, normally a simple form and pay the requisite fee. The license is simply the right to operate within the city and does not grant any special licensing for what you're actually doing.
If your area of business requires some form of special licensing like a hair salon or an accountant, then you must also comply with additional licensing by the state before you enter into business. Such special licensing is beyond the scope of business course.
DISCLAIMER: This course is taught by an attorney and addresses US law concepts that may not apply in all countries. Neither LInkedIn nor the attorney teaching the course represents you and they are not giving legal advice. The information conveyed through this course is akin to a college or law school course; it is not intended to give legal advice, but instead to communicate basic information to help viewers understand the basics of intellectual property.
- What is a sole proprietorship?
- Understanding corporate entities
- Exploring corporations and LLCs
- Choosing a corporate entity
- Creating an operating agreement
- Exploring incorporating examples
- Establishing an IRS tax ID