Using a home address to register an LLC or incorporate a business is something many entrepreneurs think about doing. That’s understandable because many new businesses start their journey in the entrepreneur’s home or garage, which allows the business to avoid office rent, unnecessary utilities, and long commutes. This not only allows more time to focus on growth, but it can also help a company turn a profit faster as it ramps up.

Does this lack of address impact the business negatively? Do you need a physical address for your business? Is it legal to use your home address for business activities? And if you use a home address, will it cause any issues for you as a business owner?

You do need a physical address to register a business, but many sole proprietors and various types of professional services businesses don’t have a separate business location and they don’t need one. When they decide to incorporate or form an LLC, they see using a home business address as a simple solution. Technically, it is legal to use your home address for your LLC, Sole Proprietorship, Limited Liability Company, C Corporation, or other business entity.

Let’s explore these questions to give you an idea of what you should think about when weighing the pros and cons of using your home address as your business address.  Keep in mind that each state may have nuances to its rules and process requirements. And, what I am about to share here is not professional legal or accounting advice, so I encourage you to talk with your attorney and accountant or tax advisor for guidance in making decisions for your business.

Important Factors to Consider

Now that we know it is legal to use your home address for business registration, let’s review things to consider.

Registered Agent Designation

Using a home address as a business address can create privacy and security concerns for business owners, but a third-party registered agent can help alleviate this concern. When a business is registered as an LLC or a C Corporation, it’s required to designate a registered agent. A registered agent is an authorized party (within the business’s state of registration) that will receive service of process notices and government correspondence on behalf of the company.

If a company appoints a business owner as its registered agent, that person’s home address information becomes publicly available in state records. In most states, an LLC or corporation’s registered agent history also becomes part of the public record. So, it’s worthwhile for entrepreneurs to consider appointing a third-party registered agent from the start if they want to avoid putting their home address out there for all to see. Having a third-party (like CorpNet) serve as a registered agent can also prevent embarrassment to a business owner’s family if the company is sued. If the home address is the registered agent’s address, the summons will be served at the entrepreneur’s house. And no one likes to give neighbors a reason to speculate and gossip!

Another way using a home address can cause privacy issues is when it’s used on a business’s website and in other marketing materials. With the address out there online, it’s available to everyone throughout the world. It might result in unwanted junk mail and unexpected home visits (such as from salespeople, unhappy customers, and individuals with ill intentions).

The Corporate Veil

Companies registered as an LLC or a C Corporation must make sure they keep the owner’s personal finances separate from those of the business. That corporate veil protects a business owner from the legal and financial liabilities of the company.

Having personal and business bills and mail come to the same address doesn’t classify as commingling in and of itself. However, business owners must make sure that they pay personal bills with personal funds and business expenses with business funds.

When using a home address to incorporate a business, failing to maintain that separation could result in a court ruling that the corporate veil has been pierced. That means the business owner may find that personal assets (home, car, bank savings, retirement accounts, etc.) could be used to settle legal disputes or debts of the company. With one of the primary benefits of forming an LLC or incorporating being limited liability protection for business owners, it’s critical to maintain separation between business and personal financials, contracts, activities, and assets so that it’s clear the business exists independently of its owner(s).

Zoning Considerations

Zoning laws vary, so business owners should check with their municipality to make sure they’re allowed to run a business from their home. Local ordinances might exist that restrict running commercial operations out of the home. Those restrictions might only affect certain types of home-based businesses or all business operations regardless of what they do. Before using a home address for your official business address, it’s critical to understand whether it’s legal to run a business from a residential property.

Rental Conditions and Homeowner Association Rules

People who rent an apartment or house and those who own condos must follow the rules set by their landlords and homeowner associations. That’s why it’s important for entrepreneurs who want to start a home-based business to check the terms of their lease or homeowner agreement. In either case, it’s possible restrictions have been included in the contracts to prevent unwanted noise, increased traffic, parking issues, and other disruptions that might not sit well with neighbors or the surrounding community.

In some cases, landlords and homeowner associations might be willing to bend the rules and allow a home-based business if the business owner can demonstrate that it won’t create any issues for the property owner or managers. For example, if a professional services provider only works with clients at the customer’s location or remotely, that business owner might get the green light since the public and other residents wouldn’t be bothered.

Professionalism

Some customers might perceive that an entrepreneur who is using a home address to incorporate a business is less professional or serious than one who has a unique business address. Hopefully, most people aren’t that judgmental. However, in some instances, it might mean the difference between them choosing to do business with one company over another.

Alternatives to Using Your Home Address

Options exist for business owners who want to operate their LLC from their home, but who don’t want to publicize their home address:

• Local Post Office – One alternative is to ask the local post office for a P.O. box. Some post office locations also offer USPS Street Addressing Service. This service assigns a P.O. box and then uses the post office’s street address and the P.O. box number to create a real address for the business.
• UPS Store – Another option is the UPS Store’s Mailbox Etc. service that provides a mailbox (that’s accessible 24/7 at some locations) and a real address. According to the UPS Store website, “Your mailing address will be the address of The UPS Store location, with either PMB (private mailbox) or the pound symbol (#) designating your individual box. Instead of The UPS Store, your name appears first.”

Keep in mind that these address alternatives aren’t usually suitable as a registered agent address or a registered office. Most states require a registered office and agent to have a physical address in the state of formation (or where foreign qualified) where they can be available during normal business hours to receive service of process for the LLC or corporation.

Don’t take that last statement lightly. In many states, failure to have a proper registered agent and registered office will result in the involuntary closure of your business. Due to this, if you decide to use a US Post Office or UPS Store for your address, make sure you spend time researching the requirements for your state of formation.

What’s Address is Right for Your Business?

As I mentioned at the start of this article, it’s imperative to get professional legal, accounting, and tax guidance before making crucial decisions.

CorpNet, of course, is here to assist you after you’ve made those decisions. No matter which state you’re forming or foreign qualifying your business in, we can help you prepare and submit your registration paperwork. We provide registered agent services in all 50 states, as well, so our address within your state goes on public record, keeping your home address private.

Contact us today to learn more about how we can help you with your business filing needs!

Maintaining an exceptional staff reigns as one of the essential ingredients for a successful restaurant. With hiring that staff, comes payroll responsibilities and complying with all related federal, state, and local employment and tax laws.

Payroll for restaurants is complex. It entails calculating work hours, wages, salaries, benefits, and wage garnishments; withholding and paying employment-related taxes; reporting and remitting withholdings to the appropriate agencies; and dealing with the nuances of handling tipped employees’ compensation and tax withholdings. The percentage of revenue a restaurant should expect to spend on payroll varies depending on the type of establishment. Fast-food restaurants usually spend less than higher-end, fine-dining eateries. Generally, 25% to 35% is the norm.

In today’s post, I’ll walkthrough what you need to know to maintain compliance and keep your costs down.

Steps for Setting up Payroll for Your Restaurant

Before administrating payroll, restaurants must prepare. I’ve listed the basic steps involved below. Your restaurant may have to fulfill other requirements depending on your location and the laws there.

1. Consider forming an LLC or Corporation for your eating establishment – While not required, registering a business as a Limited Liability Company or Corporation helps protect the business owner’s personal assets. Moreover, it may provide some tax advantages and flexibility. For instance, an eligible LLC or C Corporation can elect to be treated as an S Corporation for tax purposes.
2. Obtain an EIN – An EIN is the federal tax ID number for withholding and reporting federal employment taxes.
3. Set up a payroll bank account – You may find it beneficial to have a separate account for payroll purposes rather than use your restaurant’s primary business bank account for payroll expenses.
4. Determine the method for paying employees – Among the possible options are a paper check, direct deposit, pay cards, or mobile wallet. Some states require employers to pay employees by direct deposit into workers’ bank accounts, which involves obtaining employees’ bank account numbers and their banks’ routing numbers.
5. Register for state payroll tax – State payroll tax registration is required for withholding, reporting, and remitting state payroll taxes. Some states also require getting a separate unemployment tax ID. Depending on where your restaurant is located, you might also have to register for a local payroll tax ID.
6. Determine your restaurant’s payroll schedule – Some states may have specific frequencies for paying employees. Options might include weekly, bi-weekly, semi-monthly, or monthly.
7. Purchase workers’ compensation insurance – A workers’ comp policy compensates employees who are injured or become ill because of their work activities.
8. Prepare to obtain required documentation from employees – This will include a W-4 form to document their filing status and track personal allowances to determine the percentage of payroll taxes to be withheld from their paychecks. Some states have their own forms to determine state-mandated withholdings. Restaurants must also have employees complete Form I-9, Employment Eligibility Verification, to document that each new employee (citizen and noncitizen) hired is authorized to work in the United States.
9. Decide whether you’ll handle your own payroll activities or get professional assistance – Consider this carefully! A lot can go wrong if you calculate payroll incorrectly, miss reporting and payment due dates, or otherwise fail to handle it properly. Payroll software can help, and many businesses find it helpful to have their payroll managed by a payroll company or accounting firm if they don’t have that specialized knowledge in-house.

Restaurant Payroll Taxes and Withholdings

Restaurants with employees must register to pay payroll taxes in their state. If a restaurant has locations in multiple states, it must register to withhold, report, and pay taxes in each state where it has employees. Rules may vary depending on the state, so it’s important to research the requirements and get guidance from an accounting or payroll specialist if you’re unclear about your responsibilities.

Below is a list of employment-related taxes that restaurants may have to withhold or pay:

• Federal income tax – Restaurants must withhold federal income tax from employee pay based on an employee’s taxable wages and tip income and the allowances the worker selected on their W-4 form.
• State income tax – Restaurants must withhold state income tax from employee pay based on a worker’s taxable wages and tip income. Some states, but not all, have allowances to reduce the tax withheld.
• Local income tax – Restaurants must withhold local income tax from employee pay based on a worker’s taxable wages and tip income.
• FICA – Restaurants must withhold half of their employees’ Social Security and Medicare Taxes from their workers’ pay, and the restaurant must pay the other half. Learn more about FICA.
• State and local payroll taxes – Some might be paid directly by the restaurant while others might be withheld from employees’ pay – the rules vary by state and local jurisdiction.
• Federal unemployment tax – Restaurants pay the FUTA tax. No portion of FUTA may be withheld from employees’ paychecks.
• State unemployment tax – SUTA (or SUI) is usually paid by employers and not withheld from employee paychecks.
• Workers’ compensation insurance – This cost is paid by the restaurant and not deducted from employee paychecks.
• Employee wage garnishments – Restaurants must withhold wage garnishments — such as for alimony, child support, and unpaid taxes — from employees’ paychecks.
• Benefits and other voluntary deductions – There may be other deductions restaurants withhold from employees’ pay — such as 401K contributions, medical insurance plan premiums, health savings plan contributions, and others.

How to Calculate a Restaurant Employee’s Take-Home Pay

Payroll calculations involve the following elements:

1. Gross Pay – Restaurants must calculate their employees’ gross pay according to their hourly wage (or salary) and any tips received. Gross pay also includes bonuses earned by employees.
2. Pre-Tax Deductions – Any deductions not subject to tax, such as 401K contributions and medical insurance premiums, should be subtracted from gross pay.
3. Tax Deductions – After subtracting pre-tax deductions from gross pay, the restaurant should deduct taxes from the adjusted amount.
4. Other Deductions – Next,  the restaurant should subtract any additional voluntary or court-ordered deductions — e.g., court-ordered wage garnishments, Roth 401K contributions, and charitable contributions.
5. Net Pay – The money remaining is the employee’s net (take-home) pay.

Managing Tips and Payroll

According to the U.S. Department of Labor, tipped employees are those engaged in an occupation that regularly receives over $30 per month in tips. Examples of tipped restaurant employees include servers, bartenders, bus people, barbacks, and baristas.

The employer of a tipped employee is only required to pay $2.13 per hour in direct wages if that amount, plus the tips received, equals or exceeds the federal minimum wage. The employer must make up the difference if the direct wages and tips do not equal or exceed the federal minimum hourly wage. Some states require employers to pay direct wage amounts higher than the federal minimum to tipped employees.

All tips received by employees — whether cash or checks received directly from customers, paid over to the employee from tips charged on credit or debit cards, or received from other employees through a tip-sharing arrangement — are taxable under the law. Employees must also record the value of non-cash tips (e.g., event tickets, gift cards, etc.)

Restaurants must factor tip income into their payroll deductions from employees’ pay. They must retain their employees’ tip reports, withhold income taxes and the employee’s share of Social Security and Medicare taxes based on their wages and tip income, and remit those taxes to the government. Restaurants must also pay the employer’s share of the Social Security and Medicare taxes on their employees’ wages and reported tips.

Important note: When a restaurant adds service charges or automatic gratuities to a customer’s bill, they are considered business revenue, not employee tips. If the restaurant divides those monies among its staff, they must be treated as wages, not tips.

Why Restaurant Employees Should Report All of Their Tips

Although servers, bartenders, bussers, and other tipped employees may feel tempted to under-report their tip income, it’s important they do because it’s illegal not to.

Restaurant owners and managers can encourage their employees to report all of their tips by sharing the advantages of doing so. The more tip money an employee reports…

• The more Social Security benefits they’ll be eligible for when they retire.
• The more money they can contribute to their employer-provided 401K plan.
• The more money they will receive in unemployment benefits if they lose their job through no fault of their own.
• The more workers’ compensation benefits they can receive if they are injured on the job.
• The more easily they may qualify for a loan or line of credit.

Let restaurant employees know that if they must share their tips with other employees (for example, servers sometimes give some of their tips to bartenders and bus people), only the tip amount they keep is taxable to them. The other employees who received a portion of an employee’s tips must report the amount they received.

A quick word about tip-pooling: Typically, tip sharing is allowed among staff with direct contact with customers and who are getting paid less than minimum wage in their wages — such as servers and bartenders. However, if a restaurant owner pays workers the full minimum wage or more, they may pool employees’ tips and distribute them to all employees according to a defined policy. So, back-of-house employees (e.g., chefs and dishwashers) also get a portion of the front-house tips.

As you can imagine, workers may find it daunting to track their tips. Fortunately, the IRS offers some resources to encourage compliance with tip-reporting rules and make it easier for employees to keep accurate tip records.

• The IRS Tip Rate Determination/Education Program (TRD/EP) – This voluntary program offers two agreement-based options: 1) Tip Rate Determination Agreement (TRDA) and 2) Tip Reporting Alternative Agreement (TRAC). Both help restaurants get employees to report their income accurately and minimize lengthy IRS examinations. The IRS offers more information about the program in Publication 3144, A Guide to Tip Income Reporting for Employers in Businesses Where Tip Income is Customary.
• Publication 1244, Employee’s Daily Record of Tips and Report to Employer – This booklet serves as a reporting tool to keep track of tips. It Includes two forms — 4070A (Employee’s Daily Record of Tips) and 4070 (Employee’s Report of Tips to Employer).

Forms for Reporting Restaurant Employee Wages and Tips

• IRS Form 4070A for Employee’s Daily Record of Tips – Employees may use form 4070A or an alternate record-keeping document to record the tips they receive during their work shifts.
• IRS Form 4070 for Employee’s Report of Tips to Employer – Employees must report their tips received in a month to the restaurant by the 10th of the month after the month the employee received the tips. Employees may use this form to report their tip income (cash, credit card, and amounts paid to them from other employees) to the restaurant if they earn $20 or more in tips during the month. Or they can use a similar form of documentation as long as it contains the same information requested on Form 4070:
  • Employee signature,
  • Employee’s name, address, and social security number,
  • Employer’s name and address (establishment name if different),
  • Month or period the report covers, and
  • Total of tips received during the month or period.
• IRS Form 4137 for Social Security and Medicare Tax on Unreported Tip Income – Employees use form 4137 to report and pay their share of Social Security and Medicare taxes on tips they didn’t report to the restaurant.
• IRS Form 8027 for Employer’s Annual Information Return of Tip Income and Allocated Tips – If a restaurant is considered a large food or beverage establishment, it must file this form each year. Responsibility for submitting this form comes when a restaurant meets all of the below criteria:
  • It is located in the 50 states or the District of Columbia,
  • It provides food or beverages for consumption on the premises (excluding fast food operations),
  • Tipping by customers is customary,
  • It regularly had more than 10 employees on a typical business day during the prior calendar year.
• IRS Form 941 for Employer’s QUARTERLY Federal Tax Return – Restaurants must report income tax, Social Security tax and Medicare taxes withheld from their employees’ wages (including tips), and the employer’s share of Social Security and Medicare taxes on Form 941. They must then deposit those monies according to federal requirements.
• IRS Form 940 for Employer’s Annual Federal Unemployment (FUTA) Tax Return – Most restaurants must also file Form 940 to report and pay FUTA tax on employees’ wage and tip income. The restaurant pays FUTA tax; no money is withheld from employees’ paychecks.
• IRS Form W-2 for Wage and Tax Statement – Restaurants must provide a W-2 form at the end of the tax year to each employee to whom they paid $600 or more or whose compensation (regardless of the amount) had income taxes, Social Security tax, or Medicare tax withheld.

A large food or beverage restaurant must allocate tips if the total tips an employee reported during any payroll period are less than that employee’s share of 8% of the business’s food and drink sales. There are various methods of allocating tips, so consider talking with an accounting professional to discuss which option will work best in your situation. Tips allocated to employees should be shown on the worker’s Form W-2, Wage and Tax Statement.

What Happens If Employees Don’t Report Their Tips?

Not reporting tips could mean the employee will have to pay back taxes and penalties (up to 50% of the FICA taxes and 20% of the income taxes they owe on tips). They might even have to pay interest for all the years they didn’t report their tips truthfully.

A restaurant is not required to withhold or pay the employee’s share of Social Security and Medicare taxes on unreported tips. It must, however, pay the employer’s share of those taxes when the IRS issues a Section 3121(q) Notice and Demand.

Options for Managing Your Restaurant Payroll

While restaurant owners may consider handling payroll tasks themselves, things can go awry if they don’t have knowledge in-house about all the rules or if they don’t have adequate time amid their other duties to devote the time required to do it accurately.

At face value, the DIY approach may seem like a money-saver. But ultimately, it can become more costly if they get penalized because of missing reporting deadlines, failing to calculate wages or withholdings correctly, or not making deposits on time.

Using payroll software can help immensely because it’s specially designed to calculate income and withholdings, manage benefits, collect and store forms, and streamline other aspects of the process.

Another option is to outsource payroll tasks to an accounting firm, bookkeeper, or payroll solutions provider who understands all aspects of the payroll process and uses reliable payroll software to ensure accuracy and efficiency.

Additional Considerations

• Look for a good employee time and attendance system to accurately track employee hours, wages, and any movement between different shifts or job positions (particularly if the wages vary depending on the shift work or the job performed).
• Generally, a tip (whether cash or left on a credit card) is the property of the employee to whom it was given. However, some states allow restaurants to subtract credit card processing fees from charged tips.
• Maintain payroll records for the required. While the IRS requires employment-related tax records to be kept for four years, it’s not uncommon for businesses to hold on to them for seven years to cover state and federal statutes of limitations.
• Besides payroll-related regulations, restaurant owners must also comply with other hiring and employment laws. Several include:
  • Fair Labor Standards Act (FLSA)
  • Occupational Safety and Health Act (OSHA)
  • Family and Medical Leave Act (FMLA)
  • Employee Retirement Income Security Act (ERISA)
  • Anti-discrimination laws

Administrating payroll can be a time-consuming, intensive process that demands knowing and complying with all federal, state, and local tax laws. If your restaurant doesn’t have in-house staff with the time and expertise to do it right, seek the professional help you need to handle payroll lawfully and accurately.

Think you’re the only business owner who wants to incorporate or form an LLC before the end of the year with your Secretary of State? Think again. Registering a business at the end of a calendar year can take longer than any other time of the year. Because everyone waits until the end of the year to change their business structure for the New Year, there’s a lot of competition. What might normally take just a few weeks to get approved can take a lot longer.

Waiting until December to register your business with the Secretary of State could mean that your application gets backed up into February or later. Here’s how to avoid this end-of-year crush.

How to Register a New Business to Go Live on January 1, 2024

The secret here is being proactive and getting a head start. The sooner you submit your paperwork for registering an LLC or C Corporation, the sooner your Secretary of State can review your application and approve it. But just because your paperwork is approved doesn’t mean your new business entity has to kick in immediately, if you don’t want it to. You can designate the first day you want your new business structure to take effect.

Many businesses opt for January 1st as their activation date so that they start the New Year with a clean slate. This is also good for tax purposes. If your new business structure goes into effect during the calendar year, you essentially have to file two tax returns: one for the part of the year when you operated as a Sole Proprietor, and a second for the portion of the year that you have the new business structure.

How to File Other Paperwork With the Secretary of State

If you have other documents you need to file with the Secretary of State, such as your annual report and filing fee, DBA, or updates to your business profile that need to be amended before December 31, make sure to submit these as soon as possible.

It’s always a good idea to allow for error because there is so much mail flooding the United States Postal Service this time of year. You really don’t want your important paperwork to get lost in the sauce, so you have to plan ahead.

If there is an option to file your paperwork online, do so. You avoid the potential “lost mail syndrome” and you should be able to track the progress of your documents as they get approved.

Remember to Allow for a Margin of Error

If registering a company before year-end is something you are relying on in order to launch your business come 2024, it’s important that you start the process early enough. Mistakes do happen. You may find that you need to resubmit paperwork if you fill it out incorrectly. Don’t let your own errors get in the way of this important task.

Another option is to hire a business filing service like CorpNet. Because we have experience registering a company for thousands of businesses, we know how to get it done right the first time. We also offer expedited services that can fast-track your application and get it moved along to the top of the list.

If you’re considering starting a new business in Wisconsin, there are a lot of reasons why this is a great option. Wisconsin offers a robust business ecosystem with a skilled workforce, business-friendly policies, and a central location in the U.S. It provides a high quality of life, support from local organizations, access to research and innovation, and proximity to major markets. The state’s industry clusters, access to capital, and economic development incentives make it an attractive choice for entrepreneurs.

Start-up businesses are core to my heart and our services here at CorpNet. In today’s article, I’d like to walk through the milestones Wisconsin entrepreneurs should consider as they launch a new company.

Validate Your Idea and Create a Business Plan

Increase your potential for success by conducting a feasibility study and seeking advice from experienced advisors such as SCORE mentors, business consultants, accountants, and attorneys. This will help you determine if your business idea can be converted into a successful business.

Creating a well-structured business plan will help you flesh out your idea and validate key components are in place. While a business plan will have consistent components like a market and competitor analysis, the amount of detail in your business plan varies based on the complexity of your business.

In general, business plans include an executive summary, a company overview, product and service descriptions, a market analysis, a competitive analysis, a sales and marketing plan, a description of management and operations, and financial projections. You’ll want to include as many of these items as possible, so you can vet your idea and set yourself up for future success.

You can create your business plan using online templates or seek the assistance of a professional business consultant or SCORE mentor.

Choose a Marketable Business Name

It’s important that you select a marketable and legally available business name. Before you finalize your preferred business name, it’s critical to make sure that another similar business has not already claimed it at the state or federal level. Infringing on a name that’s already in use could create legal problems for your company.

To verify that your proposed company name is available, perform the following actions:

• Check for name availability using tools like CorpNet’s free Corporate Name Search or through the Wisconsin Department of Financial Institutions (DFI) portal. This will help you make sure your name isn’t already in use in the state.
• Carefully check state-specific regulations regarding business names, such as the use of “LLC” for Limited Liability Companies.
• Review existing trademarks at the federal level to verify your business name isn’t already in use and protected.

Want to reserve a business name? In Wisconsin, the cost is $10-15, and the name can be reserved for 120 days.

Select Your Business Structure

Wisconsin offers various business structures, including Sole Proprietorships, General Partnerships, Limited Partnerships (LPs), C Corporations, S Corporations, Limited Liability Companies (LLCs), Limited Liability Partnerships (LLPs), Cooperative Associations, and more. Consider factors like liability protection and tax implications when choosing your business entity. To help with your entity selection, below are some important features of each to consider.

Sole Proprietorship

In Wisconsin, formal registration for Sole Proprietorships is not required. This business structure involves shared personal liability for both the owner and the business, offering operational advantages alongside certain drawbacks:

• Business debts and legal actions can hold the owner personally responsible, risking their personal finances and assets.
• Unlike other business types, Sole Proprietorships lack easy transferability or restructuring options upon the owner’s death.
• Attracting investors can be challenging due to the inability to issue stock and the absence of separate liability protections.
• Sole proprietors report business income and losses on their individual federal tax returns. This requires them to make quarterly estimated tax payments, including a 15.3% self-employment tax. Some sole proprietors opt to explore other business structures to reduce self-employment tax in specific cases.

Wisconsin’s business owners should carefully consider these factors and assess their needs when forming their new company as a Sole Proprietorship.

General Partnership

A General Partnership in Wisconsin is a company owned by two or more partners. Some key points to consider when setting up a General Partnership in Wisconsin:

• General Partnerships provide a simple and cost-effective structure for businesses with multiple owners.
• For both legal and tax purposes, general partners and the company are treated as a single entity.
• Unless otherwise indicated in the partnership agreement, the partners have equal ownership.
• Unlike some business entities, setting up a General Partnership in Wisconsin doesn’t require formal state, federal, or local registration.
• Owning a General Partnership has some disadvantages, including limited financing options, a relatively high self-employment tax burden, and the possibility of the business dissolving if a partner leaves unless the partnership agreement addresses this situation.

Limited Liability Company (LLC)

A Limited Liability Company (LLC) is a business structure that is very popular among new business owners. Here are some important details to know about forming an LLC:

• The LLC is a business structure that separates its owners, known as members, and its financial and legal operations. This separation offers significant peace of mind to business owners who want to safeguard their personal assets from being used to settle business debts or legal matters.
• LLCs are treated as a single entity for tax purposes. Members report the profits and losses of the business on their tax returns.
• Single-member LLCs are taxed similarly to sole proprietorships, while multi-member LLCs are treated as partnerships for tax purposes.
• One of the notable advantages of the LLC structure is its taxation flexibility. Depending on eligibility requirements set by the IRS, an LLC can elect to be taxed as a C Corporation or an S Corporation offering appealing tax planning options.
• To establish an LLC in Wisconsin, you must file Articles of Organization with the Secretary of State and pay a registration fee of $100. Additionally, the state mandates that all registered businesses submit an annual report and pay a $300 fee.
• Establishing an LLC in Wisconsin involves filing Articles of Organization with the Department of Financial Institutions (DFI) and paying a $130 registration fee.
• Registered businesses must also submit an annual report and pay a $25 fee.

Limited Partnerships (LP)

Forming a Limited Partnership is yet another option to consider in Wisconsin. Here are the key data points to know about forming one:

• A Limited Partnership is comprised of both general partners (responsible for managing the company) and limited partners.
• Limited Partnerships lack a clear separation between the business and the individuals involved, making them vulnerable to personal liability risks akin to a General Partnership.
• Limited partners don’t participate in management. They provide funding, limiting liability to their investment.
• Operating a Limited Partnership can be complex from an accounting standpoint, with limited partners exerting minimal influence after they invest.
• Establishing a Limited Partnership in Wisconsin involves paying a $70 filing fee.
• Ongoing compliance includes filing an annual report ($25) with the DFI.

C Corporations

For businesses that need a bit more structure, a C Corporation might be a great option. Here is an overview of what you need to know about this entity type:

• Operating as a C Corporation offers its shareholders the highest level of personal liability protection.
• C Corporations are separate legal entities, both legally and for tax purposes, reporting profits independently and paying federal income tax on those earnings.
• C Corporations must establish a board of directors to ensure the best interests of shareholders and stakeholders are being served.
• C Corporations have diverse financing options, including issuing stock to attract investors.
• The potential “double taxation” of dividends may deter some entrepreneurs from selecting a C Corporation, as they are taxed both at the corporate and individual shareholder levels. C Corporations can elect S Corporation status to mitigate this issue, provided they meet IRS eligibility requirements.
• In addition, operating as a C Corporation may involve higher formation costs and increased ongoing compliance, including annual reports and shareholder and board meetings. In Wisconsin, C Corporations must register, pay a $100 registration fee, and file an annual report ($40), while nonstock corporations (nonprofits) register by paying a $35 fee and a $25 annual report fee.

Learn more about incorporating a business in Wisconsin.

S Corporations

Another entity option is an S Corporation, however, an S Corporation is a tax election choice, not a distinct business entity. Here are some highlights to consider:

• LLCs or C Corporations that meet the criteria can request S Corporation status by submitting IRS Form 2553.
• When any C Corporation elects S Corporation status, it gains pass-through tax treatment, eliminating double taxation concerns.
• If an LLC chooses the S Corporation election, it can maintain its original legal structure, minimizing compliance requirements. This option also ensures pass-through tax treatment, shielding some business earnings from self-employment taxes. Under this structure, only the wages and salaries of S Corporation owners are subject to Social Security and Medicare taxes, while income from profit distributions remains exempt.

Appoint a Registered Agent in Wisconsin

When a Wisconsin business is formed, the new company must appoint a registered agent and office within the formation documents for most foreign or domestic businesses. Failure to appoint and maintain a registered agent risks having your business suspended or terminated in the state of Wisconsin.

A registered agent must be available to accept “service of process” (official government documents, legal papers, etc.) for the company during regular business hours. The agent must be an individual resident or existing business entity within Wisconsin that has a physical address in the state.

CorpNet offers Registered Agent services throughout the United States and can serve as your commercial registered agent in Wisconsin.

Register Your Business Entity

The Wisconsin DFI suggests filing all the necessary paperwork and fees through the Wisconsin One-Stop Business Portal. Here’s a summary of the initial paperwork required when starting a business in Wisconsin:

• Sole Proprietorships – Sole Proprietorships in Wisconsin do not require formal organizational paperwork, but if the business name differs from the owner’s name, a trade name filing is necessary. Sole proprietors must also obtain the required permits and licenses at the state and local levels.
• General Partnerships – General Partnerships are not mandated to register in Wisconsin. However, if they use a business name different from the partners’ legal names, a “Doing Business As” (DBA) filing is needed. Creating a partnership agreement is advisable, even though it’s not required by state law.
• Limited Partnerships (LP) – LPs are formed by filing a Certificate of Limited Partnership and naming a Registered Agent.
• Limited Liability Partnerships – Limited Liability Partnerships (LLPs) can be formed by filing a “Statement of Partnership Authority General or Limited Liability Partnership” with the state.
• Limited Liability Companies – Limited Liability Companies (LLCs) must file Articles of Organization and pay a $130 fee (online). Although the state doesn’t mandate it, LLC members should consider creating an LLC operating agreement. Operating agreements are critical in defining how the LLC should operate and be managed.
• C Corporations – Wisconsin requires filing Articles of Incorporation with a $100 fee for C Corporations.

The exact form you use to register your business depends on your entity selection. Here is a list of the forms you might use for new domestic or foreign entities in Wisconsin:

• Articles of Incorporation Business Corporation (Form 2)
• Articles of Incorporation Nonstock Corporation (Form 102)
• Articles of Incorporation Cooperative (Form 202)
• Articles of Incorporation – Statutory Close Corporation (Online Only)
• Articles of Organization Limited Liability Company (Form 502)
• Student Entrepreneur Articles of Organization Limited Liability Company (Form 502SE)
• Articles of Organization Unincorporated Cooperative Association (Form 252)
• Statement of Partnership Authority Limited Partnership (Form 301)
• Certificate of Limited Partnership (Form 302)
• Foreign Registration Statement Limited Partnership (Form 321)
• Foreign Registration Statement Limited Liability Company (Form 521)
• Statement of Authority Limited Liability Company (Form 501)
• Statement of Qualification Limited Liability Partnership (Form 602)
• Foreign Registration Statement Limited Liability Partnership (Form 621)

Obtain a Federal ID Number

A Federal ID Number is also referred to as an Employer Identification Number (EIN) or Tax ID Number (TIN). It is a nine-digit number mandated by the IRS to report taxes and it’s often provided to banks when establishing a business account. Furthermore, many official documents may request a business’s EIN, so it becomes an important step for new Wisconsin businesses.

The IRS provides these identification numbers at no charge. CorpNet simplifies the EIN application process by managing the completion and submission of Form SS-4 on behalf of the company.

Open a Business Bank Account

Both accounting and legal guidelines mandate that a business entity must uphold a distinct separation between its financial accounts, documentation, and records and those of its owners. Mixing personal and business expenses and income can undermine the liability protection of owners in entities like LLCs, LPs, C Corporations, or other registered companies.

We’ve covered this topic in depth in 4 Real Reasons Why You Need a Dedicated Business Bank Account.

Understand Wisconsin’s Business Taxes

All businesses must obtain a tax certificate from the Wisconsin Department of Revenue before engaging in any business activity in the state. Below are important taxes to be aware of:

• Corporate Tax – Wisconsin has a flat 7.9% corporate income tax rate.
• State and Local Sales Tax – Wisconsin’s sales tax rate is currently 5%, and an additional local sales tax of a maximum of 1.75% may be charged.
• Employer Taxes – Wisconsin manages state payroll taxes through the Department of Revenue.
  • Income taxes – Wisconsin has an income tax of 3.5% to 7.65%.
  • Unemployment Insurance (UI) – Wisconsin State Unemployment Insurance (SUI) varies by calendar year. The 2023 standard rate is 0-12%. New employers pay a rate of 3.05% or 3.25%.

Obtain Business Licenses and Permits

Some businesses may require licenses, permits, or government authorizations from federal, state, or local governments. Wisconsin breaks down business license and permit requirements into groupings for 200+ professions, 5 business types, and 50 rules and statutes.

Examples of these buckets are:

• Types – Business, health, manufactured home, trades, and unarmed combat sports.
• Rules and Statues – Accounting, architects, athletic agents, auctioneers, barbering, cemetery, chiropractors, cosmetology, dentists and hygienists, dietitians, firearm certifiers, funeral directors and funeral establishments, genetic counselors, geologists, hearing and speech, home inspectors, medicine, nursing, pharmacies, real estate appraisers, substance abuse professionals, and therapists.

You can see the full list of professional licensing requirements at the state’s A-Z Professionals List. To save time, you can also turn to CorpNet to help you identify and apply for the business licenses and permits required in the area where you plan to operate your business.

Research Other Business Essentials

• Adhering to zoning regulations is essential for Wisconsin-based businesses with physical locations.
• Investigate industry-specific insurance requirements to protect your business from unforeseen setbacks.
• Develop a capital acquisition strategy, whether through loans, investor attraction, or alternative funding methods.
• If your business plans to hire employees, ensure compliance with human resource-related regulations and obligations. Learn more about registering for payroll taxes in Wisconsin to help get you started with your new staff.

Stay in Compliance

To maintain legal operations and good standing in Wisconsin, businesses must consistently meet their annual report and tax filing commitments. If you are unsure about your specific compliance needs, seeking guidance from a legal and tax expert is recommended.

CorpNet offers a convenient service through its Compliance Portal, which assists in tracking approaching deadlines for license renewals and annual reports, and it’s available for free online, simplifying the compliance process.

Additional State and Federal Resources

You don’t have to navigate the challenges of starting and managing a business by yourself. Keep a resource list handy for valuable information and insights. Here are some useful options:

• Wisconsin Secretary of State
• Wisconsin One-Stop Business Portal
• Wisconsin Department of Revenue
• Wisconsin Economic Development Corporation (WEDC)
• Wisconsin Department of Financial Institutions
• Wisconsin Small Business Development Center
• NAWBO (National Association of Women Business Owners)
• IRS Website
• Wisconsin Department of Workforce Development
• US Patent and Trademark Office
• SCORE Mentors
• (DFI) Corporate Name Search Portal
• Wisconsin U.S. Small Business Administration

After consulting with your legal and accounting advisors to create your plan, consider enlisting CorpNet for assistance with your business registration and compliance submissions. Our services can save you time, cut legal costs, and guarantee precise and timely filing submissions.

Filing formation paperwork with the state is just one step required to start a 501(c)(3) tax-exempt nonprofit organization. Federal income tax exempt status isn’t automatic. A nonprofit must file Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, with the IRS to request federal income tax exemption. The form is quite long and involved, so it can be helpful to talk with an accounting professional for guidance as you prepare to complete it.

The obvious benefit of 501(c)(3) status is being exempt from paying federal income tax. Also, some states automatically grant state income tax exemption to 501(c)(3) nonprofits. Another advantage is that individuals’ and businesses’ contributions to the nonprofit are tax deductible, which incentivizes people to donate to the organization. 501(c)(3) status also allows a nonprofit to seek funding via grants from foundations and government agencies.

Qualification Requirements for 501(c)(3) Status

Not all nonprofits can be Section 501(c)(3) organizations. Here are the IRS’s qualification requirements:

• Must be organized and operated solely for specific tax-exempt purposes.
• None of their earnings may benefit any private shareholder or individual.
• No substantial part of their activities can attempt to influence legislation.
• It should not participate in or intervene in any political campaigns in support of or in opposition to candidates for public office.

501(c)(3) exempt purposes:

• Charitable (e.g., relief of the poor, distressed, or underprivileged)
• Religious
• Educational
• Scientific
• Literary
• Testing for public safety
• Fostering national or international amateur sports competition
• Preventing cruelty to children or animals

Some nonprofit organizations are considered tax-exempt under the 501(c)(3) tax code and, therefore, do not have to file with the IRS to obtain recognition of exemption. Examples include churches, mosques, synagogues, auxiliaries and associations of churches, and organizations with gross receipts of $5,000 or less in  the tax year.

Nonprofits that don’t fit the criteria for being a 501(c)(3) might still qualify for tax-exempt status. Typically, they must file IRS Form 1024 to apply for tax exemption.

Submitting Form 1023 to the IRS

Form 1023 must be filed electronically:

• Register for an account on Pay.gov.
• Enter “1023” in the search box and select Form 1023.
• Complete the form.

It seems simple enough, but the simplicity stops there! Form 1023 has 26 pages and requests a lot of detailed information. The IRS takes compliance very seriously when considering whether to grant 501(c)(3) status. Expect to receive questions from the IRS about the application and anticipate that it may take three months to a year for the IRS to return its decision (via a determination letter).

Each time organizers submit Form 1023 to the IRS, they must pay $600 for the filing. Make sure you have all the required information and have completed the form completely before submitting the application, or it will cost you!

Note that some nonprofits might qualify to file a shorter (and lower-cost, $275) version of the form — Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. To find out if your organization is eligible, complete the Form 1023-EZ Eligibility Worksheet found in the IRS’s instructions for Form 1023-EZ.

Information and documentation needed for submitting Form 1023:

In preparation for completing the form, the nonprofit must have an EIN, and applicants must create and upload a single PDF file (not exceeding 15MB) that contains a copy of each of the following items:

• Entity formation document and any amendments (e.g., articles of incorporation, constitution, trust document, etc.)
• Bylaws, if adopted
• Signed & completed Form 2848 (Power of Attorney and Declaration of Representative) if a third party will represent the organization
• Form 8821(Tax Information Authorization) if the organization will authorize a third party to receive its confidential tax information
• Supplemental responses, if applicable
• Expedited handling request, if applicable

Carefully read the form’s instructions so that you assemble the documentation in the correct order.

The 26-page Form is broken down into 11 parts to be completed by all applicants, followed by schedules for specific types of organizations:

• Part I: Identification of Applicant (organization name, address, contact, etc.)
• Part II: Organizational Structure (entity type, bylaws)
• Part III: Required Provisions in Your Organizing Document (questions to assess if formation documents contain the required provisions for meeting 501(c)(3) criteria)
• Part IV: Narrative Description of Your Activities (describing the nonprofit’s past, present, and planned activities)
• Part V: Compensation and Other Financial Arrangements With Your Officers, Directors, Trustees, Employees, and Independent Contractors (annual compensation, if applicable, for services to the organization; questions related to compensation arrangements)
• Part VI: Your Members and Other Individuals and Organizations That Receive Benefits From You (questions related to goods, services, and funds provided by the nonprofit to individuals and other organizations)
• Part VII: Your History (questions related to the organization’s history, including whether it’s taking over activities of another organization)
• Part VIII: Your Specific Activities (information about the types of activities the nonprofit will participate in — e.g., types of fundraising activities, political involvement, types of contributions accepted, awarding of grants or loans, etc.)
• Part IX: Financial Data (Statement of Revenues and Expenses and Balance Sheet)
• Part X: Public Charity Status (questions to determine classification as either a private foundation or public charity)
• Part XI: User Fee Information and Signature
• Schedule A: Churches (questions specifically for religious organizations)
• Schedule B: Schools, Colleges, and Universities (questions about operations and racial nondiscrimination policy)
• Schedule C: Hospitals and Medical Research Organizations (questions for healthcare-related nonprofits)
• Schedule D: Section 509(a)(3) Supporting Organizations (questions about the nonprofit’s relationship with organizations it supports)
• Schedule E: Organizations Not Filing Form 1023 Within 27 Months of Formation (questions and information to determine the date of eligibility for tax exemption)
• Schedule F: Homes for the Elderly or Handicapped and Low-Income Housing (questions for nonprofits that provide housing for those in need)
• Schedule G: Successors to Other Organizations (questions for a nonprofit taking over activities or assets of a for-profit organization or converting from a for-profit to a nonprofit organization)
• Schedule H: Organizations Providing Scholarships, Fellowships, Educational Loans, or Other Educational Grants to Individuals and Private Foundations Requesting Advance Approval of Individual Grant Procedures (questions about the types of educational grants, loan terms, purpose, application process and criteria, etc.)

You can find more information about the various sections of Form 1023 in the detailed instructions on the IRS website.

Where to Get Help

I recommend discussing the legal and financial considerations of forming a nonprofit organization with a business attorney and CPA. When applying for 501(c)(3) status, a CPA’s input on the financial sections can also be beneficial. Also, to save valuable time and have the peace of mind that your federal and state income tax exemption applications are completed fully and accurately, ask my expert business filings team to prepare and submit the forms for you.