Tax Issues for Minnesota Start-Ups

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Registering to Pay Taxes

Once you have officially obtained the necessary licenses and permits for your business, you will be responsible for notifying Uncle Sam. In many cases, you can simply contact a central tax agency, which in turn will get you started with the appropriate forms and filing requirements. Once your business is listed in their database, you may receive periodic inquiries about your business or forms that you must complete to comply with state or federal laws, or both. The main taxes you will need to be aware of include:

• Estimated federal and state individual income taxes,
• Estimated federal and state corporate income taxes,
• A sales and use tax, and
• Property taxes.

Oftentimes, there may be a single form or tax application that will get you registered with several agencies regarding several different taxes. The Minnesota Department of Revenue has a single form called Form ABR, Application for Business Registration that will help you determine for which taxes your business will be liable. Form ABR, Application for Business Registration, will assign a Minnesota tax identification number for your business and register it for sales and use tax, nonresident entertainer tax, income tax, franchise tax, Minnesota care taxes, and other special taxes, when applicable.

Get an Employer Identification Number

Unless you form a sole proprietorship, you must obtain an employer identification number (EIN), even if you do not have employees. The first registration you should make is to file Form SS-4, Application for Employer Identification Number, with the federal government. You will receive an employer identification number that you will need in many cases to complete other registrations. It is somewhat similar to your personal Social Security number, only it relates to your business.

You can obtain Form SS-4 from your local IRS office or your accountant. Once you have the form, you can apply for an EIN either by mail or by telephone. If you want an EIN immediately, call the Tele-TIN phone number for the service center for your state. The Tele-TIN phone and address are located in Appendix B. If you are not in a hurry, you can apply for your EIN through the mail. Keep in mind, you will need to complete Form SS-4 at least four to five weeks before you will need your EIN.

After you receive your EIN, you will need to register with the state agency that governs employees and employers.

Estimated Income Tax

As a small business owner in Minnesota, you will need to estimate the amount of money your business will make and pay taxes on these estimates. Regardless of the form of business you have chosen, you will be responsible for paying estimated income taxes several times throughout the year - usually on a quarterly basis. And, if you have underpaid, you will be required to pay underpayment penalties at the end of the year. Make sure you calculate these amounts or any underpayment penalties in your monthly cash flow projections. Your accountant may be able to advise you on how best to plan for paying estimated income taxes.

Individual Federal Income Tax

When you are a sole proprietor, a partner, or a shareholder in an S corporation, you are considered self-employed. Since there is no employer to deduct federal income tax from your wages, you must make quarterly advance payments against your estimated federal income tax. You must report this business income even if it wasn' t actually distributed to you. File your payments along with IRS Form 1040-ES. You will then file Form 1040 at the end of the year along with Schedule C - which itemizes your business expenses for the year. Check with your accountant to make sure you know how to estimate, file, and pay correctly.

Individual State Income Tax

In Minnesota, sole proprietorships, partnerships, corporations, and LLCs must pay against estimated state income tax. If your tax liability is estimated at $500 or more you will need to file Form M-14, Individual Estimated Tax Payment Vouchers. Foreign partners file Form M-71. Foreign S corporation shareholders use Form M-72. For more information contact the Minnesota Department of Revenue.

As a business owner, it is your responsibility to remain informed of these requirements. Contact your local small business administration (SBA) office, small business development center (SBDC), or the Minnesota Department of Revenue for more information. Further information and Internet links are available through The Oasis Press via its Internet Web site at http://www.psi-research.com.

In addition to estimated tax payments you must pay a self-employment tax, which is your contribution to Social Security and Medicare. This tax is paid quarterly and is included in your estimated tax payment. Since you are self-employed, you are responsible for the full amount of the contribution, rather than the 50% you would pay as an employee. One-half of the self-employment tax is deductible as a business expense on federal Form 1040

Corporate Income Tax

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