How to Start a Business in Alabama: Accounting and Taxes

A straightforward guide to preparing your accounting, taxes and finances for your new Alabama business.

Introduction

There are many exciting things to do when you’re starting a business in Alabama but setting up proper accounting and tax systems from the beginning will save you time, money and headaches. This guide covers the basics you need to know, from selecting a business type to payroll and ongoing compliance, as well as what belongs on an accounting checklist as you start your new venture.

Select a structure for the business and tax implications

The first money move is whom you’ll do business as: a sole proprietorship, a partnership, an LLC, an S Corporation or a C corporation. Each type is taxed differently and their are different tax advantages, liability protections and filing requirements. Before the ink is dry on your decision, figure out how profits and losses will circulate through your business; what tax returns you will file; and whether the owners will be treated as employees or pass-through taxpayers. Early clarity, though, helps put bookkeeping categories and tax planning into place.

Form your company and get necessary state registrations

Once you chose a structure, register your business with the state and secure any local business licenses. Some registrations may impose tax accounts at the state level (e.g., sales tax permits or employer withholding accounts). By getting registered early, you will be able to charge and remit tax properly and can avoid late registration penalties.

Obtain an employer identification number (EIN) for your business

Most types of business need to have an employer identification number (EIN). With it, you can open a business bank account, hire employees and file federal tax forms. Even some sole proprietors like having an EIN to keep personal and business finances apart. Add the EIN in your accounting setup so payroll and tax payments are connected with the correct identifier.

Establish different business bank and financial accounts

Get a business account to deposit your checks and, if relevant, a business credit card. Keeping business dealings separate also helps with bookkeeping and provides a better layer of protection for liability entities such as LLCs. Get into the habit of only posting business expenses from business accounts and always keep receipts.

Set Up Systems for Bookkeeping and a Chart of Accounts

Accurate bookkeeping is the foundation of maintaining proper tax records. Set up a chart of accounts that matches your business model: multiple revenue streams, cost of goods sold, operating expenses, payroll categories, taxes payable and owner distributions. Whether you keep a manual accounting ledger or use software, establish rules on how to categorize transactions, reconcile accounts monthly and store source documents.

Create a small business accounting checklist in your operations documents to jog your memory about the basics: bank reconciliations, accounts receivable/payable monitoring, monthly financial statements and categorizing your expenses.

Public policy and Other state level obligations such as sales tax, excise duty etc.

Register and Collect Sales Tax If your business sells taxable items or services, you need to register for sales tax and collect it from your customers. How often you include, and how to file, may depend on your volume of sales and rules in your state. Maintain separate accounts for sales tax received, so that money is not used to operate the business. If you sell products or services subject to regulation, know about any excise taxes or industry-specific assessments in advance.

Setting up payroll and responsibilities as an employer

If you have employees, register for employer withholding and unemployment tax accounts at the state level. Choose how often and what to deduct from paychecks, keep detailed employee records, and track payroll tax deposits and reporting. For peace of mind around payroll, add “bookkeeping and payroll set up” to your onboarding list — making sure to record wages, taxes, benefits and expenses accurately the first pay period.

Estimated taxes and owner distributions

Numerous small business owners must pay estimated taxes quarterly to avoid penalties. Estimate taxable income after appropriate deductions and prepare for quarterly payments at the federal level and possibly state level. For sole members/investment companies/partnerships, put in place a policy for owner draws or distributions and have them booked correctly so we don't mix capital with profit.

Recordkeeping, receipts, and documentation

Keep a strong file of receipts, invoices, contracts and bank statements. That saves you audit risk and hassle, because having accurate records makes it easier to prepare the correct tax return. Keep digital copies, create a system for naming files and save data as required by tax agencies.

Control and Authorisation, Segregation of function

Even the smallest of organizations should have some simple internal controls: Segregate duties where you can, mandate dual approvals for large payments and conduct regular reviews of reconciliations. Controls protect cash flow and aid early detec tion of errors or fraud.

Financials reporting on a regular basis and key metrics

Create monthly financial statements—profit and loss, balance sheet, and cash flow—to track performance. Monitor essential barometers like gross margin, operating margin, accounts receivable turnover and your cash runway. Tax planning, hiring decisions and pricing strategies are all informed by regular reporting.

Include Tithing and Professional Help in Year-End Tax Planning

As tax time nears, organize payroll records, expense receipts, building depreciation schedules and accounts of owner equity transactions. You may want to talk with a tax adviser for year-end tax strategies and to verify filing requirements based on your entity type. Bringing in a professional early can also maximize deductions and minimize surprises at tax time.

Continuous compliance and renewal tasks

Annual or regular renewals are necessary for many state registrations and licenses. Get automatic reminders for business licenses, registered agent appointments, annual reports, and tax filings. Being proactive about renewals averts any lapses that could disturb business.

Guide to the this checklist is available.

-Select business organization and take into account tax consequences

-Register with state and local tax agencies, such as the California Department of Tax and Fee Administration (CDTFA) - Obtain permits required to operate your brewery locally.

-Gather EIN and state tax account numbers

-Establish business bank accounts and payment terms

-Establish protocols and chart of accounts with bookkeeping strategies

-Register for state sales and other taxes

-Establish payroll, withholding and unemployment accounts

-Make estimated tax payments quarterly if necessary

-Keep thorough and orderly receipts and records.

-Establish fundamental controls internally and reconciliations on a monthly basis

-Prepare financial statements every month and monitor KPIs

-Get year-end statements and professional advice

-Schedule renews and compliance alerts

Conclusion

Opening a business in Alabama means you’ll need to stay on top of your bookkeeping and taxes right from the start. If you have the right structure, registrations, bookkeeping practices and controls in place, you can mitigate risk for your company — and set it up for a stable future. Refer to this SBA accounting checklist and follow the actionable steps to set up a solid financial infrastructure, and compliant procedures as your business grows.