Small Business Basics: Hiring Employees

small business basics


Running a small business brings with it unique challenges:successfully managing your time, cultivating (and keeping) client relationships, and managing the growth of your business. If your business is growing to the point where it’s difficult to meet client demands, it might be time to hire an employee or two.

Here are five key things you will need to know about hiring employees.

Obtain an Employee Identification Number (EIN)

Your EIN will not only identify your business to the IRS, but will also allow you to pay taxes on behalf of the business and to deal with other business-related matters.

An EIN also reduces your risk of identity theft. You’ll need to complete form SS-4. Follow all instructions carefully and submit it to the address specified on the form. Processing will be delayed if any of the provided information is missing or inaccurate.

Register with your state labor board

Before you hire your first employee, you will need to register with your state’s labor board. Doing so will ensure your business is complying with state and federal labor laws.

Verify employee eligibility

While screening employment candidates can be time-consuming for a new business owner, it’s an important step to ensure that your business is complying with employment eligibility regulations:

  • Your employees are generally required to be legal residents of the U.S. or U.S. citizen, have a social security number, and be of legal age to work in your industry.
  • If you own a nightclub that will serve alcohol for example, your employees must be at least 21.
  • You will need to complete an I-9 form for every employee within three days of their hire date. The I-9 also specifies which documents are required to verify a person’s eligibility to work in the United States.

Establish tax withholding records

Each of your employees will be required to complete a W-4 form on or before their employment date. Many businesses choose to include this form in their new hire paperwork, also known as onboarding documents in some industries.

For more specific information, you can refer to the IRS Employer’s Tax Guide or consult a tax professional.

State employee tax requirements vary by state. The Small Business Administration has an excellent resource for state-by-state tax requirements.

Additionally, at the end of each year you are required to furnish a W2 form to each employee that received hourly wages, salaries or other compensation from your business.

Register with your state’s New Hire reporting program and obtain worker’s compensation coverage

You are required to report any new hires (or re-hires) to your state’s New Hire program within 20 days of the hire or re-hire date.

Lastly, business who have employees need to purchase and maintain a Worker’s Compensation policy. You may purchase a policy though a commercial carrier or you can self-insure through your state’s Worker’s Compensation insurance program.

Managing a growing small business means not only additional client and customer demand for your product or services, but it also means you may have to hire employees to meet the increased demand. By following the steps above, you can ensure your business complies with IRS and state tax board regulations.


Starting Your Own Business? What You Need To Know About Your Taxes


starting your own business

Ditching the 9-5 world is something that most of us dream about. If you’ve been fortunate enough to leave the 9-5 world behind to start your own business, your tax outlook will change considerably. Here is what to expect in starting your own business:

Obtain an EIN (Employer Identification Number) While an EIN isn’t required if you’re a sole proprietor, it is a good idea. You’ll reduce your risk of identity theft if you use your EIN instead of your Social Security number when filing your taxes.

Choose a business structure: While it’s important to consult with an attorney prior to launching a business, there are four possible business structures to consider:

  • Sole proprietorship
  • LLC (Limited Liability Corporation
  • Partnership
  • C or S corporation

Each business model carries with it specific implications for your taxes, so it is vital that you enlist a qualified attorney or tax pro before starting out. They can advise you on the best business model to suit your needs and goals.

You can restructure your business as your needs and goals change over time.

Common deductions

As a business owner, you may have access to tax deductions that weren’t available to your in your 9-5 days. They can include:

  • Business-related meals, travel, and entertainment
  • Business-related auto expenses
  • Rent of office space or for home office use
  • Office equipment
  • Health insurance costs for your employees
  • Start-up expenses

You’ll need to keep accurate records of all income and expenses in order to claim any of these deductions. Keep all receipts related to your business deductions.

There is a variety of productivity software packages and apps that can help you keep this chore manageable over time.

Quarterly tax payments

Unlike the traditional work structure where you paid your taxes at the end of the year, as a business owner you are required to pay quarterly taxes if:

  • Your business is a sole proprietorship, partnership, or S-Corp shareholder
  • You expect to earn $1,000 or more from business activities

You are required to pay at least 90 percent of your tax balance in order to avoid significant fees and penalties. If you’re not sure how to calculate your quarterly taxes, be sure to consult with a qualified tax professional.

Starting your own business can be rewarding: no set schedules, no office politics, and the ability to perform work you truly care about.

Along with the rewards of small business ownership come a unique set of challenges: determining the ideal business structure, managing expenses and deductions, and a significant change in how and when you pay taxes.

Make the start-up phase of your business as easy as possible by consulting with a knowledgeable tax professional who can provide valuable input as you structure your business and establish yourself as a business owner.


Self-Employment Tax Tips



Working as a freelancer had its advantages: more control over your time and who you work for. No time clocks or strict dress codes. No need to fill out a triplicate form to request a half day off for that doctor’s appointment. In other words, lots of perks.

Self-employment or freelancing also has its downsides, whether you run a business with employees or are a sole proprietor. For one thing, there’s no payroll department to deduct taxes on your behalf, so it is up to you to deduct and pay your own taxes on time each year.

First, the basics…

Self-employment taxes represent the Social Security and Medicare taxes that are normally deducted from a worker’s paycheck. The employer pays half, and the employee has the other half deducted from their check each pay period. The employer submits both parts each quarter, and these are the taxes that fund the Medicare and Social Security that workers typically draw from when they reach retirement age.

If you’re self-employed, however, you’ll be responsible for both parts. In essence, you’ll be paying twice what your employer deducted from your paycheck each payday.

The IRS calculates your Social Security and Medicare taxes by using a fixed percentage based on your net income (income after expenses are deducted). Let’s suppose your net self-employment income for the year was $10,000.00. Your self-employment tax would be $1530.00 or 15.3 percent of $10,000.00.

You’ll state this amount when preparing your taxes using Schedule SE.

How to pay self-employment tax:

  • Complete Form 1040, and attach Schedule C “Profit and Loss from Business” along with the Schedule SE.
  • Remit your payment along with Form 1040-V (payment voucher) and include a check or money order along with the voucher.
  • Mail the return to the address specified on the voucher.

If the thought of paying a lump sum each year leaves you cold, you could pay estimated taxes each quarter instead. You’ll send in 1/4 of your total tax liability each quarter. The IRS has more information on how to calculate your estimated taxes.

While there are many advantages to self-employment, the tax aspect can be a headache if you’re caught unprepared. By understanding the basics of self-employment tax, you’ll be in a better position to determine whether this is something you can deal with on your own, or if you’d benefit from consulting with a tax pro, especially during your first year of self-employment.

Either way, self-employment offers a level of freedom and flexibility typically not found with a 9-5, so if you’re in a position to strike out on your own, do so!

Just don’t forget about those pesky self-employment taxes.

It’s Closing Time: IRS Rules For Closing Your Business



If you’re faced with closing a business, the IRS has regulations in place to ensure you meet your full tax obligations for that business. You’ll need to inform the IRS of your closure plans and issue the proper forms to any employees you may have.

Required Forms

The types of forms you’ll need depend entirely on your business structure. If you were the sole owner of the business, you will only need to file the Schedule C attachment with your tax return and indicate “final return” by checking the appropriate box at the top of the form.

If you had business assets, you’ll need to list them individually on Form 8594 “Asset Acquisition Statement” and include that form along with your final Schedule C.

If you had employees, you’ll need to complete a final Form 941 (“Employer’s Quarterly Tax Return”). If your payroll tax deposits were $1000.00 or less, you’ll need to file Form 944 instead. Be sure to issue final W2s to your employees, and complete your final Schedule C if your business was a sole proprietorship.

Closing Out a Company With Employees

  • Pay your federal payroll tax for the last quarter your company was in business
  • Mark “final return” on the 941 form
  • If you’ve been funding a retirement plan for your workers, you’ll need to close that program by either notifying the program administrator or by continuing to fund contributions until the end of the calendar year.

Closing a Company With Business Assets

If you own assets that were purchased solely for business use, you’ll need to inform the IRS of these assets and their subsequent sale.

  • List information about each asset, including date of sale, date it was placed in service, the original purchase price, and the amount of depreciation over the years.
  • This information will be used to determine the Fair Market Value of each asset. Once you deduct the FMV from the sale price, you will either have a taxable gain or taxable loss.

The decision to close a business is rarely an easy one. By understanding the necessary IRS procedures for closing a business, you’ll remain in compliance with the IRS, and you’ll be able to freely move on to your next business venture.

Tax Tips for Business Owners: Hiring Seasonal Help

If you own a retail business, chances are the holiday season will be one of the busiest times of the year for you. You’re thinking of adding some seaonal workers, but this is your first busy season, so where do you start? Here are some tips to keep in mind as you begin hiring:

Plan ahead

Plan in advance of the busy season so you can hire and adequately train your seasonal staff. Know your business: do sales increase around the holidays, or drop off? This is a key indicator of whether or not you need seasonal help. By planning ahead, you also have time to post the job opening and to interview, screen and hire applicants. Will you be hiring them as W2(payroll) employees or as independent contractors (employee pays their own taxes)? Make sure your new hires have all their paperwork completed in advance of their start date: W4 and I-9 for W2 employees, and W9 for independent contractors, in addition to any in-house paperwork specific to your business.

Job opening should ideally be posted in late October or early November for holiday hiring, or early spring for summer openings. Look for candidates whose skills, temperment and availability will match those of your business.

Look Into Employer Tax Breaks

If your business has less than 30 full-time employees, you may be eligible for certain tax breaks. Likewise, if you hire people that belong to disadvantaged groups, you could be eligible for the Work Opportunity Tax Credit. Qualified individuals include:

  • Summer youth employees who live in designated Empowerment Zones or Rural Renewal counties
  • SNAP (food stamp) clients
  • Ex-felons
  • Select military veterans
  • Long-term TANF (Temporary Aid to Needy Families) clients
  • Employees referred to you via Vocational Rehabilitation
  • SSI (Supplemental Security Income) recipients

If you hire a worker from any of the eligible groups, you can claim 40 percent of the first $3,000 earned by that person for a maximum credit of $1200.00 per eligible employee. You will not only help a disadvantaged individual gain valuable job experience, but you will also decrease your business’s overall tax liability at the end of the year.

Whether you own an online retail storefront or a brick-and-mortar storefront, peak buying periods can make or break a business. Staffing shortages and slow order turn-around can alienate busy shoppers and send them elsewhere. By preparing in advance and hiring adequate staff for your peak buying season, you’re ensuring your business will be around to seen another peak buying period next year.