Business start up questions - in PA

[Jenn2980]

I've done a good amount of research on what I need to do legality wise with starting up a business in Pennsylvania, but I have a few confusions still that I was hoping someone could guide me on. (My mother and I are starting as a "general partnership"):

Do we need a federal EIN if we have no employees? If so, should this be the first step? Is there a way to do it off-line? (I don't like putting in SS# on the internet)

Registering our business ("ficticious name") with the state, at what point in the process do we do this? First, or after we have the EIN?

Is there any cost to applying for a PA state sales tax ID#? Where/how do we do this?

Other than getting product liability insurance (we're most likely going to go with HSCG), is there anything else we need to do as far as legal stuff? I'm also confused as to what steps to do in what order - do we need the EIN before we can register the "doing business as" name with the state, or do we have to that part first?

Any and all help would be greatly appreciated!

 

[cmzaha]

Unless incorporating you do not need an EIN number your taxes will be done under SS#, I do not know about your state regs so that you will need to check on. You need to file for your ficticious name and will have to publish in the newspaper before you can get resale and business bank account. (at least that is how it is in CA)

 

[Jenn2980]

Thank you! That's what I figured about the EIN, but was having a hard time finding out for sure (my state's small business info page wasn't clear on that part). Yes, the advertising in a local newspaper is part of the law in PA also, I did find out about that but had forgotten to mention it.

So, filing for the ficticious name registration would be the first step then? For the life of me I can't understand why my state's info website doesn't just lay out the steps to take in order based on what type of business you are filing as. I've spent many hours researching this stuff and still can't get perfectly clear answers on some of it.

 

[Belinda02]

A partnership EIN may be advisable in the future once u know for sure there is an ongoing business. You can download paperwork from the IRS website and mail in. The IRS would prefer a partnership but this will increase your paperwork and associated costs.

 

[shunt2011]

I am a sole proprietor (sp). I only had to file for my sales tax and I had to get DBA certification(doing business as) in order to open a checking account for my business. I live in Michigan so I just had to go to the county clerks office and they ran a search and gave me the documentation which is valid for 5 years. I also checked with my state and county to see if anything else was required and was fortunate as there was nothing else to be done. I also have insurance so all my ducks were in a row.

 

[cmzaha]

A partnership EIN may be advisable in the future once u know for sure there is an ongoing business. You can download paperwork from the IRS website and mail in. The IRS would prefer a partnership but this will increase your paperwork and associated costs.

Less paperwork the better. I have had 2 partnership businesses and 2 corporations. In my opinion the simpler the better. LOL, IRS hates cottage businesses. Taxes are so much easier with a simple partnership

 

[Jenn2980]

Thank you very much! Obviously we want to make sure we do everything legally, but as Carolyn said, I want to keep things as simple as possible, at least to start. If we don't NEED the EIN, then we won't do that part right now if it would complicate things.

We'll get the DBA certification (and run an ad in a local newspaper that's required along with that), obtain a sales tax ID number, get insurance, and then open an account in the business name at the credit union we both belong to. It think I have it straight now

 

[whiskandbowl]

Welcome! I'm from PA as well It seems that most of your questions have been answered already, but I wanted to drop in to say- check and see if your local area has a Small Business Development Center. There's one in my area and a couple times a year they hold a seminar about starting a small business. It discusses business ID/tax ID, and all that fun stuff! I'll try to dig out the document I have from it!

They also offer services to help you develop business plans, using different business software, and can even help with loans, etc.

 

[Jenn2980]

Welcome! I'm from PA as well It seems that most of your questions have been answered already, but I wanted to drop in to say- check and see if your local area has a Small Business Development Center. There's one in my area and a couple times a year they hold a seminar about starting a small business. It discusses business ID/tax ID, and all that fun stuff! I'll try to dig out the document I have from it!

They also offer services to help you develop business plans, using different business software, and can even help with loans, etc.

Thank you for the tip I'll look into that.

 

[Belinda02]

Also, to anyone else who reads this; a partnership with a friend would be different than with your Mom. I would recommend more documentation with a friend including EIN. A large order from a corp will likely include receiving a 1099 and they will want a tax id#. Giving a corp your SS# opens up additional problems. I would recommend talking to your tax preparer at this point.

 

[green soap]

I have gotten 1099's as sole proprietor, no tax ID was needed. The order amount that will trigger a 1099 is $600 and over. This applies to the whole USA. The feds just want to know when you get money....

Also wanted to add that you can get a sellers permit without a registered business name in CA, for example if you just want to sell at a farmer's market and deal with cash. To open a business bank account you do need one though. Some cities also have additional requirements, so check with your local authorities.

 

[Jenn2980]

Also, to anyone else who reads this; a partnership with a friend would be different than with your Mom. I would recommend more documentation with a friend including EIN. A large order from a corp will likely include receiving a 1099 and they will want a tax id#. Giving a corp your SS# opens up additional problems. I would recommend talking to your tax preparer at this point.

Ah yes, very good point. If it were not my own mother that I was partnering with, I would certainly do things differently.

 

[SoapSudStacy]

Valuable information, I too am from PA and just getting started. I do however have some soaps in a local craft store who collects sales tax on everything in their store so they told me that for right now I do not "need" a sales tax ID number. At what point of selling your soaps does one venture into the business expenses of everything listed above? I too want to follow the rules but I also want to make sure that I can make a go of it in my area first

 

[la-rene]

I see I am a little late to the party here, however, here is my 2 cents. My company is a General Partnership. An EIN is required for General Partnership Federal and State Taxes. (http://www.irs.gov/pub/irs-pdf/i1065.pdf page 16 item D) You will be completing a 1065 which will attach to your own 1040. There is a lot involved in the taxes for General Partnerships, you may want to consider being a sole propriator for now unless you have an accoutant to advise you. I had to get a lot of advice. You will also need the EIN for a business bank account if you are a General Partnership. It is not difficult to get one, our bank did it when we applied for the biz acct. We have not had any issues with them getting it through the internet.

There are several other issues with Taxes and the General Partnership that aren't really clear from the IRS. First you CAN NOT get away with filing under a cash basis if you are selling soap. You must do an inventory and Cost of Goods Sold. Which means, if you are making stuff now, you better be documenting EVERY thing that is going in your soap. We did not in the beginning. It has caused nothing but headaches. Secondly, because of COGS you will not be able to deduct your supplies that go into your soap/body inventory until you either sell it or get rid of it. IE: we spent an insane amount of money getting ready to sell but we only started selling in Oct. So, we have a lot of inventory sitting on shelves which skewed our COGS to where we owed money. Because, until it's sold and you can deduct it, it is actually counted as income. Yes...stupid, but true. Even oils/ingredients that have not made it into soap is counted. So, make sure you keep track of everything. If you have items that are untrackable, they can be deducted as incidental supplies. Incidental Supplies would be everything that isn't trackable and will be used up with in the year. (There isn't much, unfortunately.) Everything else can't. It sucked to figure out, but now it is rolling and easier to handle.

Luck!!

I forgot to mention, you will need a General Partnership Agreement also. We found a suitable on on the internet and customized it for us. But, somethings will have to be ironed out, like if one partner bails, how long does the other get to figure out if you want to sell all assets or buy the bailing partner out.... etc.

 

[Jenn2980]

I see I am a little late to the party here, however, here is my 2 cents. My company is a General Partnership. An EIN is required for General Partnership Federal and State Taxes. (http://www.irs.gov/pub/irs-pdf/i1065.pdf page 16 item D) You will be completing a 1065 which will attach to your own 1040. There is a lot involved in the taxes for General Partnerships, you may want to consider being a sole propriator for now unless you have an accoutant to advise you. I had to get a lot of advice. You will also need the EIN for a business bank account if you are a General Partnership. It is not difficult to get one, our bank did it when we applied for the biz acct. We have not had any issues with them getting it through the internet.

There are several other issues with Taxes and the General Partnership that aren't really clear from the IRS. First you CAN NOT get away with filing under a cash basis if you are selling soap. You must do an inventory and Cost of Goods Sold. Which means, if you are making stuff now, you better be documenting EVERY thing that is going in your soap. We did not in the beginning. It has caused nothing but headaches. Secondly, because of COGS you will not be able to deduct your supplies that go into your soap/body inventory until you either sell it or get rid of it. IE: we spent an insane amount of money getting ready to sell but we only started selling in Oct. So, we have a lot of inventory sitting on shelves which skewed our COGS to where we owed money. Because, until it's sold and you can deduct it, it is actually counted as income. Yes...stupid, but true. Even oils/ingredients that have not made it into soap is counted. So, make sure you keep track of everything. If you have items that are untrackable, they can be deducted as incidental supplies. Incidental Supplies would be everything that isn't trackable and will be used up with in the year. (There isn't much, unfortunately.) Everything else can't. It sucked to figure out, but now it is rolling and easier to handle.

Luck!!

I forgot to mention, you will need a General Partnership Agreement also. We found a suitable on on the internet and customized it for us. But, somethings will have to be ironed out, like if one partner bails, how long does the other get to figure out if you want to sell all assets or buy the bailing partner out.... etc.

Thank you for this! We did file for an EIN as a general partnership and sent out the form and fee for our "fictitious name" (DBA) registration with our state. As soon as we get that back we'll sign up for insurance and get our sales tax ID #.

I have kept track of everything we've purchased so far, saved all receipts, and have the amounts etc. written in a ledger book. We plan on consulting with an accountant very soon so we can make sure we're keeping our books accurately.

The COGS part - just so I have this straight - so, any soap or other product made during the year that's not sold during the year will actually count as profit? The cost of the ingredients won't count as a deduction unless the finish product they were used to make is sold (even if we have accurate records of the cost of every ingredient purchased for business use)? That part confuses and doesn't make sense to me. I am keeping careful track (with receipts) of everything purchased.