New York Small Business Law

New York State Sales Tax Information

The New York State Department of Taxation and Finance just updated some of its very helpful information regarding business owners and their sales tax obligations.

For a general overview, consult "Your responsibilities under the New York State and local sales and use tax laws."

Other updated guidance:

"How sales and use taxes apply to interior decorating and design services"

"Record Keeping Requirements for Sales Tax Vendors"

Knowledge of this material and your obligations is crucial, because a business owner can be held personally liable (i.e. no hiding behind corp or LLC) for sales tax obligations and there are numerous ugly and even criminal penalties for failing to comply with the responsibilities.

Sole Proprietorship or Single Member LLC?

When you are a one person business, i.e. you are to be the only owner of your business, the question invariably arises:  sole proprietorship or single member LLC?

You are a sole proprietorship, as soon as you begin doing business.  There is no filing, no certificate, not even an EIN is required.  Startup costs couldn't be any lower.  

A Limited Liability Company is a separate entity and requires certain filings and, in New York City, Manhattan, will cost you at least $1560 to form.  A limited liability offers LIMITED LIABILITY and you are not in danger of being liable for business debts with your personal assets.   But $1560 is a lot of money to come up with and some people might just be fine with a sole proprietorship after having fully understood its limitations and risks. 

• The tax situation for a sole proprietorship and LLC is essentially the same.

• Yes, not forming an entity with limited liability subjects you to potentially unlimited liability.  However, if you are a professional service provider or consultant and what you are selling is basically your service, you would always be liable for your actions anyway.  In other words, if you screw up, people can still sue you personally, even if you have an LLC.

• If you are a startup LLC, anybody with a brain will also ask for your personal signature and guaranty when you enter into any kind of bigger contractual obligation, like signing a lease.  So the limited liabilty won't save you from being personally liable. 

• You can hire employees as a sole proprietorship.

• Aside from the unlimited liability, you also have to realize that you cannot share ownership in a sole proprietorship or transfer ownership to somebody else.  Also, when you go away, the business ends.  With an LLC, your departure from this earth would, in most cases, result in a transfer of the ownership to your heirs.

• You can always form an LLC later, when the business has grown, your cash flow has improved and/or you want to raise money by giving away some ownership of your business to another person.

Jan 1, 2012: 1099 Nightmare scheduled to Start

What do you usually report on Form 1099?  Correct, payments to independent contractors.

On January 1, 2012, businesses large and small may have to wake up to a whole new game when it comes to fling Form 1099.  From then on, they are required to issue 1099's to every vendor to which they make payments of $600 or more in any year.  $600???   That could be one or two decent dinners in NYC for you and your major customer.  Are you supposed to issue a 1099 to Peter Luger?

Obviously, this could add huge additional reporting requirements and be a major hassle for businesses and their accountants.  Let's hope for some additional regulations that would exclude major groups of businesses and transactions.   The Journal of Accountancy has has the low down in "The Coming 1099 Revolution....are you and your Clients ready?"  Yet more coverage, here and here.

Sales Tax Issues for IT Support Service Businesses

According to an advisory opinion by the New York State Department of Taxation, the bulk of what the typical IT Support Business sells to its clients is NOT due to sales tax.  But read the fine print in this opinion for some items that may incur sales tax.

Is your Independent Contractor really an Employee?

This question becomes more important, as New York and the federal Government are increasing their enforcement actions to root out employers who misclassify their workers as independent contractors.  Don't wait with an answer until the Task Force on Employee Misclassification comes knocking at your door.

New York Sales Tax on Software

Sales tax, the stuff that keeps you awake at night.   In New York, you are required to collect sales tax from your customers on receipts from the sale or rental of tangible personal property and certain services (except for food, drugs and medicine).  Tangible property is usually stuff that you can touch.  What about computer software?  You can't really touch it,  so do you have to pay sales tax on the sale or license of software?  

Tax Changes for 2009 (when filing in 2010)

Get up to date with this article from the Journal of Accountancy and use their useful Filing Season Quick Guide.

File your W-2s and Wage Reports Online

I'm back from a mini blogging break having to do with a lot of work, taxes and other miserable paperwork that needed to get done.  One thing I learned is that you can file your W-2s and wage reports for your employees with the Social Security Administration conveniently online.

It is free and as an added bonus, if you file your wage report online, it extends your deadline from February 28 to April 2, 2007.

**This post is for informational purposes only and does not constitute legal advice**

How to save Taxes with an S Corporation

One of the main reasons for choosing an S corporation over a limited liability company is the possibility to save self-employment taxes.  Members of an LLC have to pay 15.3% self-employment tax on their share of the LLC's income (for the first $94,200).  Shareholders of an S corporation can split the S corporation's earnings into salary and distribution of dividends.  As a result, they only have to pay self-employment tax on the salary.  However, the IRS is on to them and has gotten more aggressive in demanding that you pay yourself a decent salary.  In other words, if you are a cosmetic surgeon in private practice, you won't get away with declaring 30,000 as salary and 500,000 as distribution of dividends.

Talk to your accountant to get his or her opinion on your tax situation.

Stephen L. Nelson, accountant in Redmond, Washington, explains better than I ever could how you could save taxes using an S Corporation.

Tax Saving Tips for the Self-employed

June Walker, author, practicing accountant, workshop leader and seminar speaker in Santa Fe offers helpful tax and financial advice on her relatively new blog.  The post that caught my attention: Designers Dozen: Tax Saving Tips for the Graphic Artist.

"June Walker posts simple and easy-to-understand answers to complex tax questions asked by her website visitors. You will learn that tax savvy and recordkeeping know-how can save you time, stress, anxiety, and money -- as well as form the foundation of successful self-employment."