Self-Employed Individuals
Self-employed individuals who work in the building trades, as consultants, instructors or real estate professionals, are usually compensated for their work as contractors rather than as employees. This means that no Federal income, Social Security or Medicare taxes, or State income taxes, are withheld from their compensation.
Each business or individual for whom you work should ask you to provide a completed Form W-9. You can obtain a blank Form W-9 here: https://www.irs.gov/pub/irs-pdf/fw9.pdf. Once you’ve filled in and signed your Form W-9, you can provide a copy of the same completed Form W-9 to each business or individual for whom you work.
People start new businesses all the time. All you really need is a good idea, some energy and enthusiasm, a check or credit card, and you’re ready to start.
Here are the steps that you should take, in this order:
A Good Business Idea
You’re on your own here. I can’t help you with this, sorry.
Business name
Naming your new business can be a bit of a challenge. You want to choose a name that is distinctive and stands out yet is not too similar to that of a competitor. In the CPA practice business, it’s common to choose a name that includes your own name, as I had done when I named my practice “Joseph T. Twardy, Jr., CPA LLC”.
I am not aware of any business name directory or clearing house, per se. You may want to visit the NH Dept. of State (DOS) or MA Secretary of the Commonwealth’s Office (SotC) web sites referenced below to search their business name directories.
Online Presence
If you plan to establish a significant online presence for your new business, you should visit GoDaddy.com first to search their web site for URLs that are available for you to license from GoDaddy. Your business name may not necessarily be the same as your URL, but you want to have some connection between the two before you settle upon a name for your new business.
Choose a Business Entity
You can create your new business based upon any of several types of business entities. These range from very simple to more complicated. Like most things in this life, there is no “right” business entity for a small business owner, only a range of viable alternatives to choose between.
These are the simplest of business entities which do not require any legal advice or registration with the State to establish:
- Sole Proprietor. The simplest of all business entities that you can choose. You do business under your name. No new legal entity to establish and manage.
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Income and expenses are reported on your Federal Form 1040 tax return, Schedule C. - Doing Business As … (“d/b/a”). Identical to a “Sole Proprietor” except that you have created a new name for your business. Generally, you can choose whatever name you’d like for your business. Keep in mind that you should avoid using any names that are similar to those of other businesses, especially potential competitors, in your local area.
As with the “Sole Proprietor”, income and expenses are reported on your Federal Form 1040 tax return, Schedule C.
These more complex business entities may require some legal advice and will require registration with the State to establish:
- Limited Liability Company (“LLC”). A Limited Liability Company (LLC) is a business entity created by State statute. Its owners are called “members”. Please note that “LLC” is NOT an acronym for “Limited Liability Corporation”.
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Depending on elections made by the LLC and the number of its members, the IRS will treat an LLC either as a corporation, partnership, or as part of the owner's tax return (a "disregarded entity").
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An LLC with only one member is treated as “an entity disregarded as separate from its owner” for federal income tax purposes unless it files Form 8832 and affirmatively elects to be treated as a corporation. A single-menber LLC is a “pass-through” business entity. Income and expenses are reported on your Federal Form 1040 tax return, Schedule C. You can learn more about single-member LLCs here: https://www.irs.gov/businesses/small-businesses-self-employed/single-member-limited-liability-companies
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An LLC with at least two members is classified as a partnership for federal income tax purposes unless it files Form 8832 and elects to be treated as a corporation. A multiple-menber LLC is a “pass-through” business entity. Income and expenses are reported on your Federal Form 1065, Form 1120-S or Form 1120, as discussed in more detail below. These business income tax returns require the reporting of Balance Sheet and Equity amounts in addition to income and expenses.
- Partnership. A “Partnership” is exactly that – a group of like-minded individuals, or in some cases business entities, who band together to form a business entity. Partnerships are popular with professional business associations, such as architectural firms, consultants, CPA practices, law firms and medical practices, and with natural resources and energy businesses such as oil and natural gas exploration and production companies. Partnerships also provide a good mechanism for the senior members to transfer their ownership interest to junior members as they near retirement age.
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A Partnership is a “pass-through” business entity. Income and expenses, assets, liabilities, and equity are first reported on the partnership’s Federal Form 1065 tax return. Each Form 1065 return includes a Schedule K-1 for each partner that reports the amounts of income and expenses, assets, liabilities, and equity in proportion to each partner’s ownership percentage. These amounts flow through to the partner’s Form 1040 tax return, Schedule E, p.2. - S-Corporation (“S-Corp.”). An “S-Corp.” is one type of legal business structure common among small businesses. S-Corp.’s get their name from Subchapter S of the Internal Revenue Code (IRC), under which they’ve elected to be taxed. Requirements of an S-Corp. give a corporation with 100 or fewer shareholders the benefits of incorporation while being taxed as a partnership. One of the most compelling reasons to form an S-Corp. is to avoid the double-taxation levied on C-Corp. income.
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An S-Corp. is a “pass-through” business entity. Income and expenses, assets, liabilities, and equity are first reported on the S-Corp.’s Federal Form 1120-S tax return. Each Form 1120-S return includes a Schedule K-1 for each shareholder that reports the amounts of income and expenses, assets, liabilities, and equity in proportion to each shareholder’s ownership percentage. These amounts flow through to the shareholder’s Form 1040 tax return, Schedule E, p.2. - C-Corporation (“C-Corp.”). The “C-Corp.” is the granddaddy of all business entities in the United States. C-Corp.’s get their name from Subchapter C of the Internal Revenue Code (IRC), under which they’ve elected to be taxed. C-Corp.’s are independent legal entities, owned by their shareholders, that have unlimited growth potential. Most large businesses and public companies are formed as C-Corp.’s because a C-Corp. is a business structure that allows for limitless growth through stock sales (which makes them appealing to investors) and is ideal for large, retail-based businesses.
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A C-Corp. is not a “pass-through” business entity. The C-Corp. itself is first taxed at the federal corporate tax rate of 21%. Any dividends or profits the company passes on to its shareholders are taxed a second time as personal income.
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Don’t be blinded like a deer in the headlights over the Tax Cuts and Jobs Act of 2017 (TCJA) provisions that lowered the nominal Federal corporate income tax rate from 35% to 21%. For most small business owners, these provisions are rather meaningless.
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Because a C-Corp. does not by definition include any “pass-through” mechanism, another drawback to C-Corp.’s is that cash can be distributed out of a C-Corp. only via salary and wages, or via cash dividends, both of which are taxable income at the personal level. This drawback makes a C-Corp. a less desirable choice for the small business owner. - Other Business Entities. There are several other, more specialized business entities, such as PLCC’s and PC’s, that one could consider. These entities are established less frequently by small business owners than those described above. For that reason, I have opted not to discuss them here.
You can learn more about business entities here: https://www.irs.gov/pub/irs-pdf/p5868.pdf
Register Your Business with Your State
If you’ve decided to form a legal business entity (LLC, Partnership, S-Corporation, C-Corporation or tax-exempt organization), you must register your new business in your State.
New Hampshire businesses: Visit the NH Dept. of State (DOS)’s web site https://sos.nh.gov/corporation-ucc-securities/corporation/ and follow their instructions to register your new business in New Hampshire. The DOS will charge a nominal fee to register your new business, which you can pay with a personal credit card.
Massachusetts businesses: Visit the MA Secretary of the Commonwealth’s Office (SotC)’s web site https://www.sec.state.ma.us and follow their instructions to register your new business in Massachusetts. The SotC will charge a nominal fee to register your new business, which you can pay with a personal credit card.
Obtain a Federal EIN
Once you’ve registered your business with your State, you may apply for a new Federal Employer Identification Number (EIN). You do not necessarily need to have a Federal EIN. In my case, I wanted to create some separation between my CPA practice and my personal identity. And I wasn’t too thrilled with the idea of giving my SSN out to every vendor that I did business with.
You can apply for a Federal EIN online by visiting this IRS web page:
https://www.irs.gov/businesses/small-businesses-self-employed/get-an-employer-identification-number There is no charge to obtain a Federal EIN.
Open a Bank Account
Once you have registered your new business and received a Federal EIN from the IRS, open a new checking account in your business’s name at whatever bank you prefer. If the bank offers a debit card that is tied to this checking account, apply for one, too.
Now you’re in business! That should do it. All that you have to do now is to succeed!
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All businesses must e-file Federal and State income tax returns each year. The specific tax returns to be e-filed will depend upon the type of business entity that you created for your business.
Federal Business Tax Returns
Here is a list of the various Federal business tax returns:
| Business Entity | Tax Return | Specific Items | Flow-Through | Due Date |
|---|---|---|---|---|
|
Sole Proprietor, d/b/a Single-member LLC |
Form 1040 | N/A | Schedule C | April 15 |
|
Partnership Multi-member LLC |
Form 1065 | Schedule K-1 | Schedule E, p.2 | March 15 |
| S-Corp | Form 1120-S | Schedule K-1 | Schedule E, p.2 | March 15 |
| C-Corp. | Form 1120 | N/A | N/A | April 15 |
| Trust | Form 1041 | Schedule K-1 | Schedule E, p.2 | April 15 |
| Other Entities | Varies | Varies | Varies | April 15 |
Note that Partnerships, S-Corp.’s and Trust’s generally do not pay income taxes directly, as the income and deductions that they report each year are transferred via a Schedule K-1 to the individual taxpayer’s Form 1040 income tax return. On the other hand, C-Corp.’s will pay Federal income taxes directly to the United States Treasury, as there is no such “flow-through” mechanism available for C-Corp.’s in the Internal Revenue Code (IRC).
Federal Business Tax Returns
The New Hampshire Dept. of Revenue Administration (DRA) requires all businesses to file a unified Business Tax Return (BT) that applies to all business entities each year.
The New Hampshire business tax is comprised of two taxes: the Business Enterprise Tax (BET) and the Business Profits Tax (BPT).
The Business Enterprise Tax (BET) is assessed on the taxable enterprise value tax base, which is the sum of all compensation paid or accrued, interest paid or accrued, and dividends paid by the business enterprise, or the company’s gross receipts from all activities, or that are above the baseline thresholds listed in the following table:
| Tax Year |
BET Value Tax Base Threshold |
BET Tax Rate |
|
|---|---|---|---|
| 2025 | 298,000 | 0.55% | |
| 2024 | 281,000 | 0.55% | |
| 2023 | 281,000 | 0.55% | |
Any BET paid may be applied as a credit against the Business Profits Tax (BPT). Any unused portion of the BET credit may be carried forward and allowed against the BPT for ten years, from the tax year in which the BET was paid for credits attributable to tax years ending on or after December 31, 2014.
The Business Profits Tax (BPT) is assessed on the taxable business profits of business organizations conducting business activity within the state, that are above the baseline thresholds listed in the following table:
| Tax Year |
BET Value Tax Base Threshold |
BET Tax Rate |
|
|---|---|---|---|
| 2025 | 109,000 | 7.5% | |
| 2024 | 92,000 | 7.5% | |
| 2023 | 92,000 | 7.6% | |
New Hampshire Business Tax Returns are due on the same dates as Federal Business Tax Returns, as listed above.
Businesses that earn less than the BPT Gross Income Thresholds listed above do not have to file a BPT return.
Companies that expect their BPT liability to be over $200 for the tax year are required to make estimated tax payments in 25% increments each quarter of the following tax year. These payments must be made by the 15th day of the fourth, sixth, ninth, and 12th months of the fiscal year.
Massachusetts Business Tax Returns
Massachusetts business tax returns generally follow the organization of Federal business tax returns, as described above. Here is a list of the various Massachusetts business tax returns:
| Business Entity | Federal Return | ||
|---|---|---|---|
|
Sole Proprietor, d/b/a Single-member LLC |
Form 1040 | Form 1 | April 15 |
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Partnership Multi-member LLC |
Form 1065 | Form 3 | March 15 |
| S-Corp | Form 1120-S | Form 355S | March 15 |
| C-Corp. | Form 1120 | Form 355 | April 15 |
| Trust | Form 1041 | Form 2 | April 15 |
| Other Entities | Varies | Varies | April 15 |
Note that the Mass. Dept of Revenue assesses a minimum corporate excise tax of $456 on all S-Corp. and C-Corp. business tax returns every year.
If your business is a legal business entity (LLC, Partnership, S-Corporation, C-Corporation or tax-exempt organization) that you have register with your State, you must file an Annual Report with that State.
An Annual Report is a simple report that provides the State with an updated list of your business’s address, contact information, officers and board members. There are no accounting or tax entries required.
New Hampshire businesses: Visit the NH Dept. of State (DOS)’s web site https://sos.nh.gov/corporation-ucc-securities/corporation/ and follow their instructions to file your business’s Annual Report with the DOS.
For all NH business legal entities other than tax exempt organizations, the NH Annual Report is due on April 1st of each year. The DOS posts a schedule of filing fees on its web site, which you can pay with a personal credit card. For single-member LLCs, the DOS’s Annual Report filing fee is $100 plus an additional $2 for payment with a credit card.
For all NH tax exempt organizations, the NH Annual Report is due by December 31st every five years. For tax exempt organizations, the DOS’s Annual Report filing fee is $25.
Massachusetts businesses: Visit the MA Secretary of the Commonwealth’s Office (SotC)’s web site https://www.sec.state.ma.us and follow their instructions to file your business’s Annual Report with the SotC.
For all MA business legal entities, the MA Annual Report is due on the anniversary of the registration of your business with the SotC of each year. The SotC posts a schedule of filing fees on its web site, which you can pay with a personal credit card. For single-member LLCs, the SocT’s Annual Report filing fee is $500 plus an additional $20 for payment with a credit card. Ouch!
For all MA tax exempt organizations, the SocT’s Annual Report filing fee is $15 plus an additional $3.50 for payment with a credit card.