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.
> Corporate Structures
> Employment of Contractors
> Federal Insurance Contribution Act (FICA)
> Federal Unemployment Tax Act (FUTA)
> Income Tax Returns
> Massachusetts Sales and Use Tax and Meals Tax Law
> State and Federal Identification Numbers
> State Unemployment Insurance Tax
> Trademarks or Service Marks and Copyrights
> Withholding Tax
> Workers' Compensation Law
> Zoning Regulations
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.
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.
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
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 approximated).
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 over $500.00 – subject to change. (See corporations for filing
info). 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.
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.
Trademark or 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, One Ashburton
Place, Room 1711, Boston, MA 02108. 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 online at
www.sec.state.ma.us. The completed
form, with the $50 filing fee, should be sent to the Secretary of State’s Office
in Boston. Trademarks and service marks are renewable every ten 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 ‚ symbol. The following web site provides useful
information on federal trademarks:
www.uspto.gov for the U.S. Office of Patent
and Trademarks. Searching for existing trademarks can be found at:
For general information on trademarks, visit:
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 Copyright Office, L.M. 455, Library of Congress,
Washington, D.C. 20559, 1-800-688-9889 or 202-707-3000.
Information can also be found at the U.S. Copyright Office's website at
www.copyright.gov. There is a $30 filing fee with the U.S. Copyright office.
For general information on the basics on copyrights, visit:
The U.S. Office of Patents and Trademarks
(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 the following web sites:
State and Federal
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 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.
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 can be found by
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
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
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 Mass. Department of Revenue's website at
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
The Commonwealth of Massachusetts, Department of Labor & Workforce
Development, Department of Industrial Accidents (www.mass.gov/dia)
has the responsibility of enforcing the Workers' Compensation Law. Telephone:
800-323-3249 ext. 470 or 413-784-1133.
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.
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
- Form 4562 Depreciation
- State Income Tax - Form 1
- State Schedule C (Profit & Loss)
- State Form 1-ES (Self employment Income Tax Payment
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
- 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.
- 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
- Federal Form 1120S with Federal Form 4562
- State Form 355S
- Schedule K-1
- State Form 355-A (Corporation Excise Tax Return)
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).
Federal Unemployment Tax Act
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 their website at
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 $6.75 per hour (as of 5/2003).
Federal guidelines can be found at
www.irs.ustreas.gov and Massachusetts
guidelines can be found at www.mass.gov/dor.
Contribution Act (FICA)
Sole proprietors and individual partners pay self-employment tax. Corporate
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.