Starting a Business? 3 Essential Compliance Steps to Get Started Right
Employer Identification Number (EIN)
This is indeed the first step for most businesses, as it's required for many subsequent forms and tax-related activities.
Application method: Online via the IRS website is the fastest (often providing the EIN immediately upon approval).
Daily limit: The restriction to one EIN per responsible party per day, effective May 21, 2012 (reduced from the previous limit of 5), remains in effect. This applies across all application methods.
State Withholding, Unemployment, and Sales Tax
After securing an EIN, businesses must register with their state revenue department (or equivalent) for withholding taxes, unemployment insurance, and sales tax permits if applicable. Requirements vary by state, but the EIN is a prerequisite.
Payroll Record Keeping
Payroll compliance is complex and time-intensive if not managed properly.
Electronic deposits: Nearly all employers are required to use the Electronic Federal Tax Payment System (EFTPS) for federal payroll tax deposits, with few exceptions for very small businesses.
Personnel files: Essential for each employee, including:
Form W-4: Completed by the employee for federal income tax withholding calculations; includes address, Social Security Number, and withholding preferences.
Form I-9: Completed by the employer to verify employment eligibility and identity; must be retained for the required period (generally 3 years after hire or 1 year after termination, whichever is later).