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The following should be used as a guide since laws, regulations, rulings and rates change continually and require expert interpretation. Your lawyer and accountant should be consulted for specific answers. All filing fees and rates are subject to change at any time.
> Corporate Structures Sole Proprietorship Partnership Corporation A corporation must obtain permission from the Secretary of State to use or do business under a fictitious name. A corporation must also adopt and file articles of incorporation and by-laws that govern its rights and obligations to its shareholders, directors and officers. A corporation is formed by filing Articles of Organization with the Secretary of State’s Office which can include provisions relative to stock and the conduct and regulation of its affairs and for limiting, defining or regulating the powers of its directors or stockholders. It is recommended that approval of name availability should be obtained from the Secretary of State’s Office prior to filing Articles of Organization. An annual report must be submitted to the Secretary of State listing officers, directors and other information. (A corporation may have the same person named as various officers and director of the corporation.) Corporations must file annual income tax returns with the IRS and with the state in which it was incorporated and possibly other states in which it does business. The elections made in a corporation’s initial tax returns can have a significant impact on how the business is taxed in the future. A corporation can elect an S Corporation status which will cause the corporation to be taxed at the shareholder level. This may mitigate the double taxation issue experienced by corporations. Choosing an S Corporation election should be done after reviewing the corporate and personal tax status of the owners(s), preferably with a knowledgeable tax accountant. Incorporating a business allows a number of other advantages such as the ease of bringing in additional capital through the sale of equity, or allowing an individual to sell or transfer their interest in the business. It also provides for business continuity when the original owners choose to retire or sell their interest. Should you decide to incorporate your business venture, you should seek the advice of competent legal counsel and business-oriented accountants. There can be as few as one person to establish a corporation. You must state the purpose of the corporation. Taxes and liability considerations should determine business forms. The State filing fee for incorporation is $275, which enables corporations to issue stock. The name can be reserved for 30 days while papers are being prepared ($15 fee). There is an $125 annual report filing fee. There is an $482 minimum corporate excise tax due each year. (All fees are approximated). Limited Liability Company and Partnership A limited liability partnership (LLP) is a partnership which by registering with the Secretary of State, limits the personal liability of a partner for debts, obligations and liabilities of the partnership, whether in tort contract or otherwise from negligence, wrongful acts, errors or omissions, except that a partner cannot eliminate liability for his own negligence. Like corporations, LLPs must file with the Secretary of State. The fee is over $500.00 – subject to change. (See corporations for filing info). LLPs must also file an annual report with the Secretary of State. True Name Registration Many cities and towns require businesses to be located only in commercial or industrial zones. Specific information regarding regulations should be obtained from your city or town clerk's office. Always check to make sure your business may be lawfully carried on at the address you choose. If you have a home based business also check for any regulations regarding storage of materials, presence of business vehicles, etc. Trademark or Service Mark and Copyrights An individual or entity may register its trademark or service mark with the Massachusetts Secretary of State's Office, Trade Marks Division, One Ashburton Place, Room 1711, Boston, MA 02108. Trademarks can be for any word, logo, symbol or device used to identify and distinguish one product from another. A form may be obtained by calling 617-727-2850 or online at www.state.ma.us/sec. The completed form, with the $50 filing fee, should be sent to the Secretary of State’s Office in Boston. Trademarks and service marks are renewable every ten years. Registering a trademark is not required by Massachusetts law. In order to protect your trademark beyond the geographic limits of Massachusetts, you will want to file for a federal trade or service mark. You will need a federal registration to use the ‚ symbol. The following web site provides useful information on federal trademarks: www.uspto.gov for the U.S. Office of Patent and Trademarks. Searching for existing trademarks can be found at: http://www.lib.utexas.edu/engin/trademark/tm.html. For general information on trademarks, visit: Copyrights can be obtained for original works of authorship, including books, paintings, sculptures, computer software, plays and movies. Information on copyrights can be found at the Copyright Office, L.M. 455, Library of Congress, Washington, D.C. 20559, 1-800-688-9889 or 202-707-3000. Information can also be found at the U.S. Copyright Office's website at www.copyright.gov. There is a $30 filing fee with the U.S. Copyright office. For general information on the basics on copyrights, visit: The U.S. Office of Patents and Trademarks (www.uspto.gov/) grants patents which give the holder exclusive right to make, use or sell an invention. Patents are valid for 14 years for a design patent and 20 years for a use patent. U.S. patent rights are good only in this country. Separate filings are required for other countries. General information on patents can be found at the following web sites: State and Federal Identification Number Sole proprietorships without employees can use the proprietor's social security number as a business identification number. It may, however, be advantageous for a sole proprietorship to have an EIN number. Partnerships and corporations with or without employees, and sole proprietors with employees, must obtain an Employer Identification Number (EIN) (Form SS-4) from the IRS. The form can be obtained from the IRS at www.irs.gov or 800-392-6089. Partnerships and corporations with or without employees, and sole proprietors with employees, must register their business with the Department of Revenue. This can only be done online by going to www.mass.gov and registering as a new business. Further information can be obtained at Massachusetts Department of Revenue's website at www.mass.gov/dor. Massachusetts Sales and Use Tax and Meals Tax Law Information on Massachusetts sales tax can be found in “A Guide to Sales and Use Tax” which can be downloaded at www.dor.state.ma.us/publ/pdfs/sls_use.pdf. Information on meals tax can be found at www.dor.state.ma.us/publ/pdfs/meals_gd.pdf. If you plan to sell tangible personal property items at retail in Massachusetts, you must collect a Massachusetts Sales Tax. (Exempt items - which include food products and clothing up to $175 - should be determined by the Sales and Use Tax unit of the Taxpayer Assistance Bureau). You will need a Sales Tax Registration Certificate (Form ST-1) which can be obtained from Mass. Department of Revenue, 100 Cambridge Street, Boston, MA 02204, 1-800-392-6089, www.mass.gov/dor. You must obtain a Sales Tax Vendor's Identification Number (form TA-1) before you sell taxable items in Massachusetts. The tax for meals and regular sales is 5%. You can obtain the form at Massachusetts Department of Revenue's website at www.mass.gov/dor. The filing fee is $10. In order to avoid paying sales tax on materials you purchase and then resell, you will need a Sales Tax Resale Certificate (Form ST-4). You can obtain the ST-4 at Massachusetts Department of Revenue's website at www.mass.gov/dor. All employers in Massachusetts are required by state law to carry workers’ compensation insurance covering their employees, including themselves if they are an employee of their company. This requirement applies regardless of the number of hours worked in any given week. This insurance can be purchased from any insurance agent or broker who handles business insurance, or through a direct writer of insurance (call 617-439-9030 for more information). A sole proprietor is not required to have worker’s compensation insurance on him/herself. The Commonwealth of Massachusetts, Department of Labor & Workforce Development, Department of Industrial Accidents (www.mass.gov/dia) has the responsibility of enforcing the Workers' Compensation Law. Telephone: 800-323-3249 ext. 470 or 413-784-1133. If your company pays more than $600 within a year to an independent contractor you must report the payment on Form 1099. Also contractors must carry their own workers' compensation insurance or your company may be liable for it. Income Tax Returns (subject to change) A business tax kit can be obtained by calling the IRS at 1-800-TAX-FORMS. Sole Proprietors must file their tax returns annually and must file a
declaration of estimated tax federal Form 1040-ES and state Form ES quarterly. Partnerships must file their tax returns annually and must file a declaration
of estimated tax: federal Form 1040-ES and state Form ES quarterly. Partners: Corporations must file their tax returns annually and must also file quarterly using federal Form 1120-ES and State Form 355-ES. Corporate Entity: An S Corporation does not pay corporate tax on income except for a limited tax on capital gains. The shareholders pay tax on corporate profit even though it may not be distributed. Massachusetts now allows for S Corporation election for those under $9 million in gross revenues. The corporation must file Form 2553 with the IRS to obtain S Corporation status. The same ongoing filing requirements and fees are required of S Corporations as well as C Corporations. Failure to file these forms could result in the corporation being dissolved by the Commonwealth. Corporate Entity: State Unemployment Insurance Tax If you employ one or more persons for 13 weeks or more within one calendar year (need not be consecutively) or have a payroll of $1,500 or more within one calendar quarter, you must pay state unemployment insurance tax. Employers may qualify for a reduced benefit based on "experience" employment record of the business. Quarterly contributions must be made to the Massachusetts Division of Employment Security 30 days after the end of the months of March, June, September and December. A subject employer has the responsibility of completing the Employer's Status Report Form 1110A and sending it to: Massachusetts Division of Employment and Training, Contributions Department, Hurley Building, Cambridge Street, 5th Floor, Boston, MA 02133, 617.727-6560 or www.detma.org. NOTE: New businesses will be given an initial rate of 3% for two years of experience; after that time, the rate will change according to the employment record of the business. Federal Unemployment Tax Act (FUTA) The Federal Unemployment Tax Act (FUTA), with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a Federal and a state unemployment tax. Only the employer pays FUTA tax; it is not deducted from the employee’s wages. Generally, you can take a credit against your FUTA tax for amounts you paid into state unemployment funds. There are three tests (general test, household employees test, and farm workers test) to determine whether you must pay FUTA tax. Each test applies to a different category of employee and each is independent of the others. If a test describes your situation, you are subject to FUTA tax on the wages you pay to employees in that category during the current calendar year. For deposit purposes, figure FUTA tax quarterly. Use Form 940 or 940-EZ, Employer’s Annual Federal Unemployment (FUTA) Tax Return, to report this tax. You can get this form by calling 800.829.3676 or through their website at www.irs.gov/formspubs. When hiring employees, have them fill out IRS Form I-9 and Form W-4. If your employees qualify for advance payments of the earned income credit, they must give you a Form W-5. An employer must withhold income tax from an employee's wages. The number of exemptions are claimed by the employee on IRS Form W-4 (Employee’s Withholding Allowance Certificate) and the Commonwealth’s Form M-4. Sole proprietors are not subject to withholding taxes, but they must file self employment taxes. Massachusetts minimum wage is currently $8 per hour. Federal guidelines can be found at www.irs.ustreas.gov and Massachusetts guidelines can be found at www.mass.gov/dor. Federal Insurance Contribution Act (FICA) Sole proprietors and individual partners pay self-employment tax. Corporate
shareholders Corporations must pay a total FICA made up of employer and employee withholding on employee earnings. This is a match contribution. Special depository requirements - see IRS rules. Quarterly filings are due in March, June, September and December.
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