How to avoid late fees (and worse fates) for your business

Watch your step

Incorporating (S-corporation or C-corporation) or forming an LLC gives your small business numerous benefits — and the responsibility of staying in compliance with certain federal and state rules and regulations. You have certain obligations and paperwork to file each year. If you miss any steps or your deadlines, you may be charged late fees and penalties or even put your business at risk of going into bad standing with the IRS or the state. That could result in losing your personal liability protection — and acquiring a major headache. Ouch!

To ensure you stay compliant with the rules and regulations that apply to you — and avoid late fees or worse — you should get professional legal, accounting and tax advice.

In the meantime, here are some key compliance responsibilities requiring timely action. Be sure to keep them on your radar.

Set up a separate bank account for your business.

Make this one of the very first things you do when you start a business. Co-mingling your personal and business finances can lead to confusion — and even suspicion on the part of the IRS and state.

When you’ve filed as a corporation or LLC, you’re required to keep your personal and business monies separate to stay in compliance with federal and state requirements.

Get an Employer Identification Number (EIN) for your business.

An EIN, also known as a Tax ID Number, is like a Social Security number for your company. The IRS tracks your business’s activities by following your EIN. If you have employees, you’re required to obtain an EIN from the IRS — and that’s easy to do by applying for one online.

By the way, EIN’s are free. You should apply for one even if you’re a sole proprietor with no employees. Often, banks will require that you have one before they’ll establish your business bank account.

File your income taxes.

A typical C-corporation is taxed as its own entity, separate from its owners. Every year at the federal level, C-corps must file Form 1120 and S-corps must file Form 1120S to report their income, deductions and credits. Any profits are taxed at the corporate level using that year’s tax rate tables. An LLC that’s considered a “disregarded entity” will file its income via the personal tax forms of its owner(s). Remember to file your state and local income taxes, too!

File your annual report.

Corporations and LLCs in many states must file an Annual Report (or Statement of Information). Its primary purpose is to keep your vital information — such as company address and information about directors and officers — up to date with the state office. A small filing fee associated with the report may apply. Check with your state’s Secretary of State office or an online legal filing service if you don’t know what your annual report requirements and deadlines are.

Pay your state franchise taxes.

Certain states (California, for example) have a franchise tax, a fee that corporations and LLCs pay for the privilege of operating in the state. The deadline and how the franchise tax is calculated depend on the state’s rules. To find out what they are, ask your state’s Franchise Tax Board (or similar office).

Report significant changes to the state.

If you make any key changes to your corporation or LLC, you need to officially notify the state (often through an Articles of Amendment). Some of the changes that would require you to do so include: a change in your business address, a change to your company name, changes to your company’s board members, etc. The notification form is quite simple, so there’s no excuse for not making the small effort to file it.

Investigate if you’ll need to renew any permits or licenses.

While forming a corporation or LLC establishes the legal foundation for your company, you may still need to get local and/or state business licenses or permits to legally operate your business. Reach out to your municipality, county and state offices to find out what licenses and permits are required — and if you need to renew them. If you don’t have the time or don’t want to be bothered with that, you might consider asking a legal filing service to track down the requirements and make sure you stay up to date.

Close an inactive LLC or corporation.

If you have an LLC or corporation that is no longer active, you need to officially close it. Until you formally notify the state and IRS that you no longer operate the business, you need to file your business taxes, submit an annual report, pay your franchise taxes, and take care of other compliance requirements.

All of that might seem overwhelming — and unnerving ‚ given that a lack of compliance might cause you to feel the burn financially and put your liability protection at risk. But fortunately, with awareness and planning, compliance doesn’t need to be a stressful endeavor. You can avoid late fees and other penalties. Tap into the right resources (accountants, tax professionals, online filing services, etc.) for guidance and assistance so you’ll find yourself on the right — and timely — track.

Image by: Visualhunt.com