Before you can turn your business dream into a money-making reality in Massachusetts, you’ll need to meet a few legal requirements and get your formal business structure in place. But don’t be intimidated- getting your business ID numbers and beginning operations are simpler processes than many novice entrepreneurs expect.
Steps to getting a Tax ID (EIN) Number and Register Your Business in Massachusetts
- Massachusetts Means Business
- Forming a Business in Massachusetts
- Federal Tax ID (EIN) Number Obtainment
- Massachusetts State Tax ID Number
- Localized Licenses and Permits in Massachusetts
In 2017, Massachusetts was far and away the leader among New England states in terms of economic growth. With a rate of 2.6 percent, Massachusetts outperformed 39 other states, thanks to its impressive growth in technical services, science, and the professional sector. In 2018, the state is expected to perform even better, setting a trajectory for further economic growth over the next several years.
You’ll also find that Massachusetts is an ideal environment for a small business entrepreneur. Major cities like Boston, Salem, Worcester, and Springfield are already home to thousands of entrepreneurs, and collectively, small businesses account for the creation of 20 percent of new jobs in the state. In fact, small businesses make up the majority of Massachusetts businesses, with 86 percent of companies having just 20 employees are fewer.
When you’re ready to start a business, you’ll need to choose between these possible business structures:
- Sole proprietorships. Sole proprietorships are the simplest type of business to start, and the easiest to understand. They involve a single person, and don’t require much in the way of paperwork or annual requirements. You’ll pay taxes as an individual on any income you make in the business, and you’ll be held liable for just about everything that happens within the business.
- Partnerships. Partnerships are very similar to sole proprietorships; the only real difference is in the number of members (partnerships necessarily include more than one). You’ll need to draft a partnership agreement before starting, but you’ll pay taxes and face liability the same ways.
- Limited liability companies (LLCs). LLCs are slightly more complicated, since you’ll need to set up a legally distinct, "pass-through" entity for your company. LLCs track their revenue and expenses separately from individuals; individuals will pay federal taxes on any money they withdraw as profit or salary from the business, but the LLC itself won’t owe federal taxes on revenue it generates. In Massachusetts, LLCs are responsible for creating an annual report, and paying a $500 fee at the time of that report’s filing, but aren’t required to pay state-level income taxes (unless you’re being taxed as a corporation). Limited Liability Companies will also shield their owners from debt acquisition and some other forms of liability.
- Corporations. Corporations are by far the most complicated business to start, requiring more paperwork at the start and on an annual basis. This is largely because corporations can raise funding differently, going public by issuing public shares. Corporations will protect their owners from most forms of liability, making it the safest business structure if you’re concerned about liability. Corporations are considered pass-through entities like LLCs, but with one exception- they owe taxes on any eligible income they generate, resulting in double taxation for owners in some cases. Massachusetts has a complicated system for calculating state-level excise taxes on corporations; you’ll pay 8 percent of eligible Massachusetts income, plus another $2.60 per $1,000 of either your company’s taxable net worth, or your taxable Massachusetts property.
Now that you understand the difference in business entity types, you’ll be able to make a much better decision about which business structure will serve your priorities best.
Many businesses will require a federal tax ID number, also known as an employer identification number (EIN). As the name suggests, you’ll need this number if you plan on hiring employees and withholding taxes from their paychecks. You’ll also need one if you’re running a corporation, a partnership, or an LLC with more than one member. This number will serve as a unique identifier for your business; you’ll use it to keep track of your income for tax purposes, when applying for bank accounts, and when applying for loans and building business credit.
The best way to get your federal tax ID is through our online federal tax ID number obtainment services. All we need are a few pieces of information about you, your partners, and your business overall, and we can get your business registered in an hour or less.
If your business will be selling taxable goods and services in Massachusetts, or if you’re going to hire employees in the commonwealth, you’ll also need a Massachusetts state tax ID number. This will also serve as a unique identifier for your business, but as you might have guessed, it operates on the state level instead of the federal level.
You can get your Massachusetts state tax ID number with a process nearly identical to the one you used to get your federal tax ID. With our Massachusetts state tax ID number obtainment services, we can get your business registered in just an hour!
At this point, you may be wondering if you need a specific business license or permit to operate in Massachusetts. The short answer is "probably." Mass.gov offers an extensive list of different businesses that require state-level permits, including those in construction, transportation, gambling, and healthcare.
You may also need to consider local requirements for permits, licenses, and certifications. Since these vary wildly based on your city and county, it’s impossible to list every combination of requirements here. Instead, visit your local Chamber of Commerce to learn more.
Don’t be intimidated by the thought of entrepreneurship; starting a business can be risky, but it’s also a tremendous opportunity. Use our federal tax ID number and Massachusetts state tax ID number obtainment services to get started quicker and more efficiently.