Owning your own business imbues you with near-total independence. You’ll be able to make your own schedule, choose your own clients, and earn as much revenue as your business model allows. But before you can make your business idea a reality, you’ll need to register your business and get the ID numbers necessary to begin operations.
Steps to getting a Tax ID (EIN) Number and Forming Your New Business in Alabama
- Alabama Means Business
- Forming a Business in Alabama
- Federal Tax ID (EIN) Number Obtainment
- Alabama State Tax ID Number
- Localized Licenses and Permits in Alabama
The past few years have been kind to entrepreneurs in Alabama. Several Alabama cities, including Huntsville, have found themselves ranking among the best in the nation in terms of economic development– especially in the categories of defense and aerospace. In addition to Huntsville, Alabama offers several strong cities for entrepreneurs, including the economic hubs of Montgomery and Birmingham.
Entrepreneurs in Alabama enjoy the rich community around small businesses. Small companies comprise nearly 97 percent of all businesses in the state, and together, they employ nearly half the Alabama working population- more than 765,000 people. This creates a rich network of opportunities, resources, and economic growth that almost any entrepreneur can benefit from.
When you start a company, you’ll have several options on how to structure your business from a legal perspective. Sole proprietorships and partnerships are very simple and very similar (except for the number of owners- partnerships have two or more owners), but you’ll also want to consider setting up a limited liability company (LLC) or a corporation (including C-corporations or S-corporations), which is the most complex business type.
Taxes should be one of your most significant considerations. In a sole proprietorship or partnership, your revenue is taxed as personal revenue, which is a straightforward and predictable process. At the federal level, LLCs are not taxable; they’re treated as pass-through entities, so you’ll only be taxed on the money you withdraw as part of your salary or as profit. You will, however, be responsible for paying state-level taxes; in Alabama, you’ll need to pay an annual business privilege tax (BPT), calculated based on your eligible income, with a $100 minimum tax rate. Corporations will be taxed at both the federal and state level on all eligible income, and in Alabama, they’ll pay a flat rate of 6.5 percent. Note that corporation owners will also pay taxes on income they withdraw from the business, resulting in double taxation in some cases. Also, depending on your income level, some LLCs may be taxed as corporations at both the federal and state level.
You may also consider your liability- your exposure to debt and legal obligations of your business. In sole proprietorships and partnerships, you’ll be liable for everything related to your business, since you’ll be representing the business personally. LLCs and corporations are both considered to be separate legal entities, so you’ll be shielded from many kinds of liability- in corporations, you’ll have the most significant protection.
Some business structures offer other perks as well. For example, corporations have the unique power to offer public shares of the company, which makes it easier to raise funds- especially once your business has expanded beyond a certain point. The flip side is that corporations are also subject to more rules and regulations at both the state and federal level, making them more difficult to set up and navigate.
It’s a good idea to put together a business plan before you finalize your decision on what type of business structure to create. This comprehensive document will force you to research the ins and outs of business ownership, as well as specific considerations for your industry and planned location, such as current levels of competition and the behavior of your target demographics.
Once you’ve decided on a business structure, your next step will probably be applying for a federal tax ID number (also called an employer identification number, or EIN). Though not necessary for all businesses, you’ll need this number if you plan on hiring employees, if you have multiple business owners, or if you plan on opening a business bank account. When you apply for this number, you’ll register your business with the federal government, and receive a unique ID number for your company.
The process for obtaining a federal tax ID isn’t complicated, but it can be challenging and time consuming for new entrepreneurs. Fortunately, our federal tax ID number obtainment services make things much easier; with a few pieces of information, including owners’ names, SSNs, and addresses, we can get your business registered and set up with an EIN in an hour or less.
Some businesses will also need to obtain an Alabama state tax ID number. While this is a unique business identifier much like your federal tax ID, these two numbers are used for very different purposes. You’ll need a state-level Alabama tax ID if you plan on hiring employees in the state, if you plan on selling taxable goods and services in the state, or if you plan on owing excise taxes (which apply to certain materials in Alabama).
When you’re ready to register your company with Alabama, you can use our Alabama state tax ID obtainment services to do it. Just like with our federal tax ID obtainment services, you’ll just need to provide a few pieces of information, and we’ll get you set up in record time.
Alabama requires businesses to have a Business Privilege License, which is unique to the state. Applying is fairly simple, but you may also need other state-level licenses and permits. For example, healthcare organizations, gambling institutions, and construction-related businesses are all likely to need additional licensing and permits. Be aware that state-level licenses are only part of the requirements that may apply to you; many cities and counties also have local-level requirements for business certifications. Contact your local Chamber of Commerce to find out more, as there’s no single set of requirements that applies to all businesses.
Assuming you have a business plan developed and a desire to grow your company, your first step toward making things official should be getting your tax ID numbers. Rely on our federal tax ID (EIN) and Alabama state tax ID number obtainment services to get started in an hour or less!