How to Start a Business in Massachusetts

Accounting & Tax Checklist

Building your small business in the Commonwealth of Massachusetts is exciting, but establishing the accounting and tax infrastructure correctly from day one saves time, stress and money. This list of your tax and accounting to-dos as a new owner will help you with all the things you need to do to get registered, keep the books straight and stay up-to-date so that things run smoothly for current compliance and future growth.

Opt for the right business structure considering accounting

Choose the legal form (sole proprietorship, partnership, LLC or corporation) according liability, ownership and tax implications. There are varying accounting and tax reporting requirements for each structure. For instance, companies must file separate entity tax returns while sole proprietors report business income on personal filings. Think about an owner draw payroll, and profit distributions, when determining the right structure.

Be registered with state and local authorities

Once you choose the entity, register with Massachusettes state to receive your required state tax accounts. Registrations could include state income tax withholding accounts for employees, sales and use tax accounts for taxable goods or services sold or provided and employer accounts for unemployment insurance contribution. Cities or towns may require local permits and business certificates, and some industries have additional licensing requirements.

Apply for federal and state ID numbers

Most businesses are required to obtain a federal employer identification number (EIN) if you have employees, operate as a corporation or partnership, or open a business bank account. Massachusetts can also issue State Tax Account numbers for withholding and sales tax. Record these identifying numbers and retain them for use in registration, tax reporting, payroll processing and setting up vendor accounts.

Establish your bookkeeping and chart of accounts

Set up standardized book-keeping and ad-hoc chart of account that deviated from the types of your business. Categories could be revenue streams, cogs (cost of goods sold), operating expense accounts, payroll, taxes payable and owner equity. Accurate, repeatable categorization streamlines month-end reconciliations and ensures clean reports for tax reporting or business decisions.

Separate personal and business finances

Open a business bank and credit account if applicable. It offers the advantage of limited liability, facilitates bookkeeping, and provides transparent audit trails. Only use the business accounts for business purposes, and keep a tight paper trail of any owner deposits or withdrawals.

Prepare for payroll and employment taxes

“If you’re going to have employees, put payroll processes in place from the get go. Figure out pay schedules, federal and state income tax withholding and employer payroll taxes. Enroll for necessary filings, such as Massachusetts withholding accounts and unemployment insurance. Keep at a specified location true and accurate time or work records for the employees covered, make correct payments of wages or compensation due employees and furnish those employees with an itemized statement of earnings paid.

Understand sales tax obligations

If you sell taxable products or services, register for a MA sales tax account and charge the appropriate sales tax rate. To maintain records of taxable and non-taxable sales, exemptions taken by the customers and resale certificates. File sales tax returns in accordance with the schedule established by the state, as failure to do so can result in penalties.

Prepare for estimated taxes and entity-level State filings.

Sample Letters to Your Tax Professional Many small businesses pay estimated federal and state taxes quarterly. Business owners and pass-through entities should estimate taxable income and plan for quarterly estimated payments. Corporations' quarterly needs would be different. Maintain a calendar of federal, state and local returns filing dates so that you don’t run into late fees.

Maintain organized records and receipts

Keep invoices, receipts, bank statements and pay records in an orderly manner. As already mentioned: Good records make for accurate books, simplify tax filings and smooth audits. (nearline, offline) And consider the length of time that you need to keep it. 3 Keep digital copies and legible records for s long as necessary - as long as required by your business type.

Reconcile accounts monthly

Reconcile your bank and credit card statements every month so that you can catch errors and fraud early. Reconcile those accounts to your bookkeeping records monthly, and review any outstanding receivables or payables for corrections. Routine reconciliations eliminate the surprises at year end and can make tax preparation more manageable.

Track payroll and employee benefit expenses

Keep records of wages paid, payroll taxes collected and employee benefits given as well as any payments to contractors. Classify workers properly and adhere to withholding and reporting requirements. To contractors, issue end-of-year tax statements if they have received cash payments or contract work while being employed by you.

Allow for professional assistance if required

While most startups can handle the basic bookkeeping and tax on their own, there are more complex scenarios that merit professional accounting or tax advice, like if you have operations in multiple states, high levels of payroll costs, or specialized industry taxes. Include regular consults to discuss tax planning, entity structure and compliance requirements.

Create a tax calendar and internal controls

Make a calendar that shows when you have to file estimated tax payments, make payroll tax deposits, sales tax returns and annual reports. × Establish controls over authorizing expenses, controlling cash and protecting financial information. Even on small teams, separating duties helps minimize mistakes and abuse.

Get ready to close the year and file taxes

At the end of the year, you’ll also want to reconcile all accounts, look over your depreciation and asset records and make sure payroll and contractor filing has been done. Find receipts for tax returns and look into the possible deductions, credits, or incentives which correspond to your business in Massachusetts.

Common pitfalls to avoid

• Mixing personal and business money (a situation that muddies tax issues and undermines liability protections).
• Failure to register for sales or withholding taxes.
• Poor record-keeping and late reconciliations.
• Not paying estimated tax when you should.

In this case, it’s better to address these issues sooner than later to ensure operational compliance and potentially avoid fines.

Checklist summary (first 90 days)

Selecting legal structure and registering the entity

• Get an EIN and state tax IDs
• Open business bank account
• Establish bookkeeping and chart of accounts
• Sign up for withholding and sales tax accounts, if necessary
• Set Up Payroll System And Process
• Make a list of tax deadlines
• Begin a reconciliation and record retention process on at least a monthly schedule

Massachusetts Business Startup Starting a business in Massachusetts can be attained once you have clarified an accounting and tax plan. Use this Accounting & Tax Checklist to bring order to your financial organization, reduce costly errors and have you free up time to run the business.