How to Start a Business in Kentucky: Accounting and Tax Checklist

Nowhere else does the idea of beginning a small business combine such enthusiasm and responsibility. For those founders who are looking toward the long term, handling accounting and tax considerations upfront minimizes risk and saves money. This guide sets out an accounting and tax checklist for how to start a business in Kentucky: accounting & tax checklist needs, including general steps, deadlines, and record keeping suggestions.

Structure Your Business and Know the Tax Implications

Form of business Your form of business determines which income tax return form you have to file. Look into fundamental distinctions regarding liability shields, pass-through taxation and corporate tax liabilities. Consulting with a tax adviser early can help determine which structure minimizes your tax exposure and addresses your liability requirements. Be sure to be aware of any state-specific filing requirements and possible annual report obligations.

Register and Get Identifiers for Your Business

First, Register Your Business with the State Before you can open accounts and hire employees, your business must be registered with the state. Get an EIN for tax reporting and payroll tax withholding. If you’re a sole proprietor with no employees, you can use your Social Security number for federal taxes, but it might be a good idea to get an EIN that can help in banking and keeping business and personal finances separate. This start a business in kentucky accounting guide is designed to help you get the registrations right from the beginning.

State Taxes and Permits State Registration

Register for state income tax withholding, if you have employees, and any applicable sales and use tax permits, if you sell taxable goods or services. Some industries have to register for excise tax or special licensing. File any registration confirmations or account numbers in one folder.

Establish a Clean Set of Books “In order to extract accurate data that can be measured, you’ll need an accounting system which reflects these measurements,” said Andrew Donnelly.

Separating business and personal money is key. Open a business bank account and separate business credit card. Use a bookkeeping method, either cash or accrual, that suits the revenue you forecast and your inventory requirements. Learn how to write a chart of accounts that supports your business: revenue streams, cost of goods sold, payroll expense, rent, utilities, professional fees and tax liabilities.

Select Accounting Tools And Techniques (Paperless Business Sucess Series)

Decide how you will record income and expenses – manually in a ledger (for non profit clubs this might be a better option), spreadsheets, or using an accounting ledger system. Streamline procedures around invoicing, receipting, expense sign-offs and monthly reconciliations. Create a naming convention and folder system for receipts + contracts in your digital archive to make tax prep & audits a breeze.

Payroll Processes & Procedures for Paying Contractors

If you’re planning to hire staff, establish the frequency of pay, then withhold and pay federal and state income taxes, Social Security, Medicare and unemployment insurance. You won’t be able to register your accounts, or state witholdings. If you have independent contractors, start getting in your completed payee information and get ready to send out 1099s. Keep and update payroll records of hours worked, wages paid, taxes recorded, and employees for submission to various agencies.

Sales Tax Collection and Remittance

Figure out if your products or services are taxable in Kentucky and when you're supposed to collect sales tax. Sign up for a Kentucky seller's permit and keep it updated. You must collect any applicable sales tax at time of sale and remit periodic sales tax returns as required by the due date. Record your sales and exemption certificates in detail.

Estimated Taxes and Quarterly Payments

If your business anticipates federal or state income tax liability beyond payroll withholdings, estimate the tax and make quarterly estimated payments. Failure to comply, including missing or underpaying, can mean penalties. Have a list of due dates and save money consistently to pay these bills.

Recordkeeping and Documentation Best Practices

Excelling at record-keeping makes it easier to file taxes and reduces the stress of an audit. Keep bank statements, canceled checks, business invoices and receipts, payroll records and contracts as well as tax returns. Have electronic copies and a safe offsite copy. Adhere to state retention policy, for different types of documents and maintain capital asset purchase documents to feed depreciation schedule.

Track Deductions and Credits Carefully

Keep records of your deductible business expenses: startup costs, office supplies, travel, professional fees and advertising; depreciation on equipment. Separate personal from business use for dual-use items. Monitor available state-level credits and incentives (if applicable)  and be prepared to meet documentation requirements.

Get Ready for Annual Filings and Compliance To Dos

Mark important annual items on your calendar: business income tax returns, franchise or excise tax filings and any required annual reports to remain in good standing. Check the dates every year and have the documents ready in time to avoid last minute penalties.

Prepare Sales Growth, Nexus and Multistate Coverage

If you intend to sell out-of-state or hope to expand elsewhere, learn the rules about nexus and whether you have to collect taxes in those parts of the nation. Multistate sales and payroll responsibilities complicate matters; budget for further compliance work as you adapt your accounting to track location of revenue.

Establish a Friendship with an Accountant or CPA

And while you may do day-to-day bookkeeping yourself, have occasional check-ins with a licensed accountant. They can help with entity selection, tax planning, depreciation alternatives and year-end tax reporting. A tax expert who knows the Kentucky rules can help you prevent -- or fix -- such errors, and perhaps identify opportunities to reduce your kentucky tax liability.

Establish a Financial Process and Audit Rhythm

Establish a monthly routine: Reconcile bank and credit card accounts, review statements of profit and loss and balance sheet, monitor cash flow, inspect tax liabilities. Review budgets, tax estimates, payroll filings and large contracts quarterly. A’ dependable review cycle allows to the extent of fewer surprises.

Final checklist summary

• Selection of Entity and State Filing
• Apply for EIN and state tax accounts
• Establish business bank account and accounting system
• Register for sales tax and employer withholdings, as appropriate.
• Set up payroll and contractor payment systems
• Keep track of your deductions, credits and estimated tax payments
• Keep it formatted and organized.
• Plan annual filings and compliance efforts

Creating a business in Kentucky takes careful consideration of administrative setup and follow on fiscal management. This list assist in prioritizing accounting and tax items, so you can get on with running (and growing) your business without the risk of any unnecessary financial, legal or compliance hangovers.