Running a small business can be overwhelming. Beyond the day-to-day duties of production, sales, customer service, and marketing, there are the seemingly endless mountains of paperwork. Every small business must learn to prioritize in order to survive. Which tasks are urgent? Which ones can be delayed for a little while? Which piles of paper can be safely pushed to the back of the desk for the foreseeable future?
One key area in which to prioritize is the area of compliance deadlines. Certain compliance requirements are crucial, worth putting in the “Top Priority” slot, chiefly because they are accompanied by deadlines. Others are also important, but not live-or-die important. Attend to them at your leisure. In this post, we will outline the most important compliance requirements for small businesses, and tell you when you should begin to worry about those encroaching deadlines.
Compliance requirements differ based on the kind of business you’re running, the number of employees on your payroll, and what part of the country you’re based in. There are some requirements that are nearly universal, however, including taxes and annual reports. These common requirements come in four categories:
If you want to figure out what specific requirements apply to your small business, the first step is to find out what kind of business you are operating. A partnership? S-corp? LLC? The requirements differ considerably depending on the business.
Some businesses are “pass-through” entities, meaning that profits are taxed at the individual level, not the corporate level. Not every business qualifies as a “pass-through entity,” however. Most notably, C corporations are susceptible to something called “double-taxation,” meaning that profits are taxed twice, once at the corporate level and once at the individual level. C corps are entitled to many different kinds of deductions that other entities do not qualify for, so the double-taxation is not as harsh a requirement as it may seem.
Corporations are required to make “estimated tax payments” every quarter throughout the year. This certainly applies to C corps. In certain situations, it applies to S corps as well. An S corporation must make installment payments of estimated tax if the total of these taxes is $500 or more: tax on built-in gains, excess net passive-income tax, and investment credit recapture tax.
Even partnerships and lowly LLCs are required to make estimated tax payments if they expect to owe more than $1000 in taxes at the end of the year. It never hurts to consult an expert if you are unsure about how much you will be paying in taxes.
Quarterly estimated tax payments may seem like an unusual requirement, but the truth is, that’s how all taxes are paid. (Even if you’re an employee, rather than a business-owner, you pay estimated tax payments. They’re just deducted from your monthly paycheck.) Why does the IRS require quarterly tax payments instead of yearly? The short answer is that the government does it to maintain an income. If everyone – corporations and individuals – paid taxes in one lump on April 15th, government budgeting would be even more tricky than it already is.
Some states require no corporate income tax, even for C corps: Nevada, Ohio, South Dakota, Texas, Washington, and Wyoming. (Four of those states - Nevada, Ohio, Texas, and Washington – do have gross receipts tax.) Other states that have no personal income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Notice that if your business is based in South Dakota or Wyoming, you are not required to pay corporate or personal income tax, or gross receipt tax. Plus, your office windows will look out over dazzling North American landscapes.
Income taxes are one of the important compliance requirements. Make sure you understand what the tax deadlines are in your area and pay the required fees on time.
Several types of entities are required to pay franchise taxes by a certain date set by the state they are operating in. In Texas, the deadline is May 15th. Delaware asks you to pay by March 1st. (In Alaska, no franchise tax is required. Hail, frozen north!) The requirements may also vary based on the kind of business you are operating. For example, a store that sells alcohol and tobacco may pay a higher franchise tax than one that sells shoes. The best strategy here is to consult an accountant in your state. Not paying franchise tax by the appropriate deadline could result in your state revoking your right to do business there.
The annual report provides information about the business that is freely available to the public, keeping it accountable with both the state government and citizens. That information may include the business address, the names of the managers, and (if applicable) the number of shares of stock that have been issued by the company.
The deadline for submitting an annual report also varies by state. Often it is due at the same time as the franchise fee (see above). In some states, the due date is tied to the anniversary of the company. If your business was formed in August, your annual report would be due the following August and each August after that. Some states also require businesses to submit an initial report immediately after they are formed or incorporated. Check with your Secretary of State’s office to see what the requirements are in your state.
It will be no surprise that internal requirements vary greatly depending on the kind of business entity you are operating. An LLC has the fewest internal requirements, though many things that are required of a corporation – like keeping meeting minutes, creating bylaws, and issuing shares – are good things for an LLC to do as well. Organizing the structure of your company early on will only make things easier down the road.
Corporations (C corps and S corps) are required to create and maintain bylaws. What exactly are bylaws? Essentially, they are formal rules of conduct and business for the company. They govern its decision-making and basic operating procedures. Crucially, they give the corporation an air of respectability that will appeal to shareholders and potentially investors. To read more about bylaws, see this article.
When do these internal requirements need to be met? For LLCs and partnerships, the requirements are met when the articles of organization are filed with the state government. Other documentation, like operating agreements, should be kept up-to-date, but aren’t required by the state (the only exception being the state of New York). For corporations, the internal requirements are ongoing. At the very least, they should be revisiting annually to make sure that any changes have been agreed on and that agreement recorded.
This is merely a short list of the compliance requirements most business entities must fulfill to continue doing business. As always, it is a good idea to check with your state or local government to see if there are any requirements specific to your location. At the very least, we hope this information helps you breathe a little easier when facing those stacks of paperwork on your desk.