Massachusetts Small Business Development Center Network

  

Business Obligations

  

The following should be used as a guide since laws, regulations, rulings and rates change continually and require expert interpretation. Your lawyer and accountant should be consulted for specific answers. All filing fees and rates are subject to change at any time. Please visit the appropriate organization to determine the current fee schedule.


Secretary of State's Office
McCormack Building, 17th Floor
One Ashburton Place
Boston, MA 02108
617-727-7030
Massachusetts Department of Revenue
100 Cambridge Street
Boston, MA 02204
800-392-6089
Internal Revenue Service
JFK Federal Building
15 New Sudbury Street
Boston, MA 02203
800-829-4933

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Insurance Contribution Act (FICA)

Sole proprietors and individual partners pay self-employment tax. Corporate shareholders employed by corporations must also pay and the corporation must match their contribution with Medicare (see www.irs.gov).

Corporations must pay a total FICA made up of employer and employee withholding on employee earnings. This is a match contribution. Special depository requirements - see IRS rules. Quarterly filings are due in March, June, September and December.

  


Zoning Regulations

Many cities and towns require businesses to be located only in commercial or industrial zones. Specific information regarding regulations should be obtained from your city or town clerk's office. Always check to make sure your business may be lawfully carried on at the address you choose. If you have a home based business also check for any regulations regarding storage of materials, presence of business vehicles, etc.

 


Withholding Tax

When hiring employees, have them fill out IRS Form I-9 and Form W-4. If your employees qualify for advance payments of the earned income credit, they must give you a Form W-5.

An employer must withhold income tax from an employee's wages. The number of exemptions are claimed by the employee on IRS Form W-4 (Employee’s Withholding Allowance Certificate) and the Commonwealth’s Form M-4. Sole proprietors are not subject to withholding taxes, but they must file self employment taxes.

Massachusetts minimum wage is currently $11 per hour (effective 1/1/2017). Federal guidelines can be found at the U.S. Department of Labor's website at www.dol.gov/general/topic/wages/minimumwage; Massachusetts guidelines can be found at the Massachusetts Department of Revenue at www.mass.gov/dor.

 


Trademark, Service Mark and Copyrights

An individual or entity may register its trademark or service mark with the Massachusetts Secretary of State's Office, Trade Marks Division. Trademarks can be for any word, logo, symbol or device used to identify and distinguish one product from another. A form may be obtained by calling 617-727-2850 or visiting www.sec.state.ma.us. The completed form and filing fee should be sent to the Secretary of State’s Office in Boston. Trademarks and service marks are renewable every five years.

Registering a trademark is not required by Massachusetts law. In order to protect your trademark beyond the geographic limits of Massachusetts, you will want to file for a federal trade or service mark. You will need a federal registration to use the trademark ™ symbol. The U.S. Patent and Trademarks Office website provides useful information on federal trademarks. Search for existing trademarks at Trademark Electronic Search System (TESS).

Copyrights can be obtained for original works of authorship, including books, paintings, sculptures, computer software, plays and movies. Information on copyrights can be found at the U.S. Copyright Office at www.copyright.gov. There is a filing fee for the U.S. Copyright Office (fee schedule). For general copyright information, download the Copyright Office's Copyright Basics primer by clicking here.

 


Patents

The U.S. Patent and Trademark Office (www.uspto.gov) grants patents which give the holder exclusive right to make, use or sell an invention. Patents are valid for 14 years for a design patent and 20 years for a use patent. U.S. patent rights are good only in this country. Separate filings are required for other countries. General information on patents can be found at www.uspto.gov/patent.

For a local resource, the University of Massachusetts Amherst is a designated Patent and Trademark Resource Center (PTRC) in Massachusetts. Visit guides.library.umass.edu/patents for further information.

 


Federal Unemployment Tax Act (FUTA)

The Federal Unemployment Tax Act (FUTA), with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a Federal and a state unemployment tax. Only the employer pays FUTA tax; it is not deducted from the employee’s wages. Generally, you can take a credit against your FUTA tax for amounts you paid into state unemployment funds.

There are three tests (general test, household employees test, and farm workers test) to determine whether you must pay FUTA tax. Each test applies to a different category of employee and each is independent of the others. If a test describes your situation, you are subject to FUTA tax on the wages you pay to employees in that category during the current calendar year. For deposit purposes, figure FUTA tax quarterly.

Use Form 940 or 940-EZ, Employer’s Annual Federal Unemployment (FUTA) Tax Return, to report this tax. You can get this form by calling 800.829.3676 or through the publications and forms section of the IRS website at www.irs.gov/formspubs.

 


State and Federal Identification Number

Sole proprietorships without employees can use the proprietor's social security number as a business identification number. It may, however, be advantageous for a sole proprietorship to have an EIN number.

Partnerships and corporations with or without employees, and sole proprietors with employees, must obtain an Employer Identification Number (EIN) (Form SS-4) from the IRS. The form can be obtained from the IRS at www.irs.gov or by calling 800-392-6089.

Partnerships and corporations with or without employees, and sole proprietors with employees, must register their business with the Department of Revenue. This can only be done online by going to www.mass.gov and registering as a new business. Further information can be obtained at Massachusetts Department of Revenue's website at www.mass.gov/dor.

 

State Unemployment Insurance Tax

If you employ one or more persons for 13 weeks or more within one calendar year (need not be consecutively) or have a payroll of $1,500 or more within one calendar quarter, you must pay state unemployment insurance tax. Employers may qualify for a reduced benefit based on "experience" employment record of the business.

Quarterly contributions must be made to the Massachusetts Division of Unemployment Assistance (DUA) 30 days after the end of the months of March, June, September and December.

A subject employer has the responsibility of filing quarterly employment and wage details and making quarterly payments to DUA via the DUA QUEST self-service online system (www.mass.gov/uima).

 


Income Tax Returns (subject to change)

A business tax kit can be obtained by calling the IRS at 1-800-TAX-FORMS.

Sole Proprietors must file their tax returns annually and must file a declaration of estimated tax federal Form 1040-ES and state Form ES quarterly.
     - Federal Income Tax - Form 1040
     - Federal Schedule 1040-C (Profit & Loss) and Schedule 1040-ES
     - Form 4562 Depreciation
     - State Income Tax - Form 1
     - State Schedule C (Profit & Loss)
     - State Form 1-ES (Self employment Income Tax Payment Quarterly)

Partnerships must file their tax returns annually and must file a declaration of estimated tax: federal Form 1040-ES and state Form ES quarterly.
     - Partnership Entity:
     - Federal Form 1065 (Profit & Loss)
     - Federal Form K-1 to partners
     - State Form 3 (Profit & Loss)
     - State Form SK-1 to partners
     - Federal Form 4562 (Depreciation) due with Form 1065

Partners:
     - Federal Income Tax - Form 1040 with Schedule E and SE
     - State Income Tax - Form 1 with Schedule E, Form 1-ES
     - Federal Form 1065 must be attached to Massachusetts State Form 1

Corporations must file their tax returns annually and must also file quarterly using federal Form 1120-ES and State Form 355-ES.

Corporate Entity:
     - Federal Form 1120 with federal Form 4562
     - Massachusetts Forms 355A, 355 S/B, or 355ES

An S Corporation does not pay corporate tax on income except for a limited tax on capital gains. The shareholders pay tax on corporate profit even though it may not be distributed. Massachusetts now allows for S Corporation election for those under $9 million in gross revenues. The corporation must file Form 2553 with the IRS to obtain S Corporation status. The same ongoing filing requirements and fees are required of S Corporations as well as C Corporations. Failure to file these forms could result in the corporation being dissolved by the Commonwealth.

Corporate Entity:
     - Federal Form 1120S with Federal Form 4562
     - State Form 355S
     - Schedule K-1
     - State Form 355-A (Corporation Excise Tax Return)

 


Employment of Contractors

If your company pays more than $600 within a year to an independent contractor you must report the payment on Form 1099. Also contractors must carry their own workers' compensation insurance or your company may be liable for it.

 


Massachusetts Sales and Use Tax and Meals Tax Law

Information on Massachusetts sales tax can be found in A Guide to Sales and Use Tax. Information on meals tax is available in A Guide to Sales Tax on Meals.

If you plan to sell tangible personal property items at retail in Massachusetts, you must collect a Massachusetts Sales Tax. (Exempt items - which include food products and clothing up to $175 - should be determined by the Sales and Use Tax unit of the Taxpayer Assistance Bureau). You will need a Sales Tax Registration Certificate (Form ST-1) which can be obtained from Massachusetts Department of Revenue's website at www.mass.gov/dor.

You must obtain a Sales Tax Vendor's Identification Number (form TA-1) before you sell taxable items in Massachusetts. The tax for meals and regular sales is 6.25%. You can obtain the form at Massachusetts Department of Revenue's website at www.mass.gov/dor/forms.

In order to avoid paying sales tax on materials you purchase and then resell, you will need a Sales Tax Resale Certificate (Form ST-4). You can obtain the ST-4 at Massachusetts Department of Revenue's website at www.mass.gov/dor/forms.

 


Workers' Compensation Law

All employers in Massachusetts are required by state law to carry workers’ compensation insurance covering their employees, including themselves if they are an employee of their company. This requirement applies regardless of the number of hours worked in any given week. This insurance can be purchased from any insurance agent or broker who handles business insurance, or through a direct writer of insurance (call 617-439-9030 for more information). A sole proprietor is not required to have worker’s compensation insurance on him/herself.

The Massachusetts Department of Industrial Accidents (www.mass.gov/dia) has the responsibility of enforcing the Workers' Compensation Law.

 


Corporate Structures

Sole Proprietorship: A sole proprietorship is the simplest form of business. To form a proprietorship, you just have to let people know that you are in business and file a true name registration. You do not need a tax ID number; you may use your social security number. You are personally liable for all debts and other legal liabilities of your business. The income from your business is reported to the IRS as part of your personal income and is taxed accordingly.

Partnership: A partnership is formed when two or more people decide to go into business together. It is called a conduit because, although persons have banded together for a profit producing motive, it is generally not considered a legal entity separate from the partners. Thus, a partnership may not be sued in its firm name, but only the partners can be sued, as each partner shares a potential joint and several liabilities.

Corporation: A corporation is a separate legal entity that exists under the authority granted by state law. A corporation has substantially all of the legal rights of an individual and is responsible for its own debts. It must also file income tax returns and pay taxes on income it derives from its operations. Typically, the owners or shareholders of a corporation are protected from the liabilities of the business. However, when a corporation is small, creditors often require personal guarantees of the principal owners before extending credit. The legal protection afforded the owners of a corporation can far outweigh the additional expense of starting and administering a corporation.

A corporation must obtain permission from the Secretary of State to use or do business under a fictitious name. A corporation must also adopt and file articles of incorporation and by-laws that govern its rights and obligations to its shareholders, directors and officers. A corporation is formed by filing Articles of Organization with the Secretary of State’s Office which can include provisions relative to stock and the conduct and regulation of its affairs and for limiting, defining or regulating the powers of its directors or stockholders. It is recommended that approval of name availability should be obtained from the Secretary of State’s Office prior to filing Articles of Organization.

An annual report must be submitted to the Secretary of State listing officers, directors and other information. (A corporation may have the same person named as various officers and director of the corporation.)

Corporations must file annual income tax returns with the IRS and with the state in which it was incorporated and possibly other states in which it does business. The elections made in a corporation’s initial tax returns can have a significant impact on how the business is taxed in the future. A corporation can elect an S Corporation status which will cause the corporation to be taxed at the shareholder level. This may mitigate the double taxation issue experienced by corporations. Choosing an S Corporation election should be done after reviewing the corporate and personal tax status of the owners(s), preferably with a knowledgeable tax accountant.

Incorporating a business allows a number of other advantages such as the ease of bringing in additional capital through the sale of equity, or allowing an individual to sell or transfer their interest in the business. It also provides for business continuity when the original owners choose to retire or sell their interest. Should you decide to incorporate your business venture, you should seek the advice of competent legal counsel and business-oriented accountants.

There can be as few as one person to establish a corporation. You must state the purpose of the corporation. Taxes and liability considerations should determine business forms. The State filing fee for incorporation is $275, which enables corporations to issue stock. The name can be reserved for 30 days while papers are being prepared ($15 fee). There is an $125 annual report filing fee. There is an $482 minimum corporate excise tax due each year. (All fees are subject to change).

Limited Liability Company and Partnership: A limited liability company (LLC) is an unincorporated association that combines the advantage of limited liability for participants with the favorable tax treatment of a partnership. The participants, referred to as members, can participate in management control and the business without increasing their personal exposure beyond their contribution in the business. An LLC can have just one member. Like corporations, LLCs must file with the Secretary of State. The fee is $500 - subject to change. (See Corporations for filing info.) LLCs must also file an annual report with the Secretary of State which also has a $500 filing fee.

A limited liability partnership (LLP) is a partnership which by registering with the Secretary of State, limits the personal liability of a partner for debts, obligations and liabilities of the partnership, whether in tort contract or otherwise from negligence, wrongful acts, errors or omissions, except that a partner cannot eliminate liability for his own negligence. Like corporations, LLPs must file with the Secretary of State. The fee is $500 and subject to change. LLPs must also file an annual report with the Secretary of State.

True Name Registration: An individual or entity conducting business under any name other than its own must file a Business Certificate. This identifies the individual or entity and discloses the fictitious name (d/b/a – doing business as) under which it is conducting its business and provides the location of the business. The Business Certificate is required to be filed with the clerk’s office of the city or town where the individual or entity has an actual place of business. If your company is located in two or more cities or towns, you need register only where the headquarters is located. For example, if John Smith, Inc. does business as Smith’s Restaurant, it must file a Business Certificate. Each city or town sets fees, which vary, but are usually about $40. Business Certificates expire after four years and must be filed again.

www.sec.state.ma.us/cor