Recently, I looked at common business questions I receive from readers. In this blog, I would like to share some more common questions, this time of the legal variety (although I don’t practice anymore – I came to my senses!)
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Q: I’m starting a new business. What tax considerations should I be aware of?
A: The type of corporation you form will affect your taxes most significantly. The main difference between an S and C corporation is how they are taxed. An S corporation’s income passes through to the owner’s tax return, and as such, an S corporation does not pay federal tax as a general rule. Similarly, the type of accounting method you choose – cash or accrual – may also have an affect on your taxes. Finally, you need to pick a fiscal year that fits your business cycle.
You also need to learn your state’s sales tax and property tax laws, as well as payment regulations.
Working with you accountant can help with all of these things.
Q: Where do I go to get a federal tax I.D. number for my new business?
A: You need to fill out IRS Form SS4: Application for Employer Identification Number (EIN), which you can get from the IRS website. When you have completed the form, you can get your EIN number through either the mail or by phone. Since you are starting a new business, ask the IRS about, or download, these two booklets, Publication 583: Starting a Business and Keeping Records, and Publication 334: Tax Guide for Small Business.
Q: Is there anything in particular I need to be concerned about when firing an employee?
A: First of all, the general rule is that all employees are at-will, meaning they can be fired at any time without a reason – at your will. But even so, before you ever get to a firing, it is smart to have clear policies about what sorts of things are subject to discipline in your office (sexual harassment, tardiness, insubordination, etc.) These need top be communicated to employees in writing, and employees should acknowledge receipt of these policies in writing.
If you have a process for discipline, it is imperative that you follow it, and document everything throughout the process: Document verbal warnings, document discipline, document transgressions, document everything. The point of all this is to not only let employees know what is expected of them, but to protect you against any possible wrongful termination lawsuit.
Finally, understand that even at-will employees cannot be terminated for discriminatory reasons – their ethnicity, their religion, etc. These are completely irrelevant issues and cannot and should not be mentioned in any firing scenario.
Q: Is there any legal action required when you sell a business?
A: When selling a business, the most important thing is to be sure to disclose everything to the buyer. Share the books, all contracts, all leases, profits, losses, everything. Business sales can be derailed when the buyer later feels that the seller failed to disclose an important fact or facts, thereby constituting fraud. By making a complete and full disclosure, you protect yourself against any such allegation.