Why a tax compliance checklist matters

Starting a business introduces multiple tax touchpoints: entity selection, employer tax responsibilities, sales tax collection, estimated tax payments, and local licensing. Missing one step can create fines, slow permits, or trigger audits. In my 15 years advising startups and small companies, I’ve helped clients avoid costly mistakes by turning requirements into a simple checklist they revisit each quarter.

The checklist below focuses on U.S. federal obligations while flaging state and local items you must verify locally. For official federal guidance see the IRS Small Businesses & Self-Employed hub (irs.gov/businesses/small-businesses-self-employed) and IRS Publication 334, Tax Guide for Small Business.

Quick-start checklist (first 30 days)

  • Choose and document the business structure (sole proprietor, partnership, LLC, S or C corporation). Your choice affects which returns you file and how income is taxed.
  • Apply for an Employer Identification Number (EIN) if you will hire employees, open business bank accounts, or prefer not to use your SSN. See Employer Identification Number (EIN) for details: https://finhelp.io/glossary/employer-identification-number-ein/ and the IRS EIN application page.
  • Register your business name and file required state formation documents with the Secretary of State.
  • Register with your state tax agency for sales tax (if selling taxable goods/services), payroll withholding, and state employer taxes.
  • Verify local business licenses and permits required by your city or county.

In my practice, skipping an early state registration is a common cause of fines and permit delays—check local agency websites within the first two weeks of opening.

Ongoing compliance: what to track and when

  1. Federal income tax & estimated tax payments
  • If your business income isn’t fully withheld (typical for sole proprietors, partners, S-corp shareholders), make quarterly estimated tax payments using Form 1040‑ES or the business equivalent. Use safe-harbor rules or annualized methods to avoid underpayment penalties. For step-by-step help, see FinHelp’s guides on estimated taxes, including How to Calculate and Pay Estimated Taxes as a New Sole Proprietor: https://finhelp.io/glossary/how-to-calculate-and-pay-estimated-taxes-as-a-new-sole-proprietor/ and Estimated Tax Payments: Calculating and Avoiding Penalties (finhelp.io).
  • Keep records of payments and use payment vouchers or the IRS Direct Pay/EFTPS systems.
  1. Payroll taxes and employee reporting
  • If you have employees you must withhold federal income tax, Social Security, and Medicare tax, and deposit them on the schedule required by the IRS (monthly or semi-weekly). Employers also pay the employer share of Social Security/Medicare and FUTA.
  • File Form 941 (quarterly) to report wages and withheld taxes, and Form 940 for federal unemployment reporting annually when required. Provide W-2s to employees and file W-3/W-2 with the Social Security Administration.
  • Issue Form 1099‑NEC to independent contractors paid $600+ during the year. Document contractor status to avoid misclassification risk.
  1. Sales and use tax
  • Determine whether you have nexus in each state where you sell (economic, physical, marketplace nexus). If so, register, collect sales tax on taxable sales, remit on the schedule the state requires, and file returns.
  • Track destination-based sales tax for remote and online sales—rules vary by state and product/service type.
  1. Corporate and partnership filing rules
  • Partnerships file Form 1065 annually; S corporations file Form 1120‑S; C corporations file Form 1120. Owner-level taxes vary (K-1 reporting for pass-through entities).
  1. Local taxes, special assessments, and business licenses
  • Cities and counties can impose gross receipts taxes, business privilege taxes, or special licensing fees. Confirm with local jurisdiction websites and maintain renewal calendars.
  1. Recordkeeping and retention
  • Maintain organized books with separate business bank accounts and credit cards. Keep receipts, invoices, payroll records, and tax returns for at least three years; retain employment tax records for four years (per IRS guidance).

Practical timeline and calendar items

  • Immediately: Choose entity, get EIN, open business bank account, register for state taxes and sales tax, apply for local licenses.
  • Monthly or payroll-cycle: Deposit payroll taxes; reconcile bank and credit card accounts.
  • Quarterly: Estimated tax payments (if applicable); file Form 941 (quarterly payroll) and state payroll reports; remit sales tax if required on a quarterly basis.
  • Annually: File income tax returns for entity type, issue W-2s/1099s, file Form 940 (if applicable), renew business licenses.

Create a master calendar (digital or spreadsheet) with filing and payment deadlines. In my experience, clients who map deadlines to calendar alerts avoid late payments and penalties.

Common mistakes new owners make (and how to avoid them)

  • Treating taxes as a single annual task. Solution: split responsibilities into monthly, quarterly, and annual tasks and automate reminders.
  • Misclassifying workers as independent contractors. Solution: use IRS factor tests and document project terms; when in doubt, consult a CPA.
  • Ignoring nexus for sales tax. Solution: review where you have physical presence, employees, or substantial remote sales; register proactively.
  • Neglecting payroll deposit schedules. Solution: use payroll software or a payroll provider that calculates and deposits taxes on your behalf.

Tools and recordkeeping best practices

  • Use accounting software (QuickBooks, Xero, or similar) that supports class tracking, sales tax, and payroll integrations.
  • Reconcile bank statements monthly. Maintain digital copies of receipts and invoices using a consistent naming and filing convention.
  • Keep separate owner draws and personal expenses out of business accounts unless you’re a sole proprietor using a designated business account; make regular documented distributions.

State and local differences

State rules vary widely—income tax, franchise tax, gross receipts tax, and sales tax bases are not uniform. Contact your state department of revenue and local tax office for registration details. The SBA’s Starting Your Business guide is a reliable starting point for state-level steps: https://www.sba.gov/business-guide.

When to hire a professional

  • First-year setup: entity election (S corp vs. LLC taxed as S corp), payroll system setup, and multi-state sales tax exposure.
  • If you expect inconsistent or rising income that complicates estimated tax calculations.
  • If you employ staff or use contractors across state lines.

A CPA or payroll specialist can save more in avoided penalties and time than their fee in many cases. In my practice, a single consultation in year one often prevents repeated penalties later.

Sample prioritized checklist (printable)

  1. Register business and obtain EIN.
  2. Open business bank account and bookkeeping system.
  3. Register for state sales tax and employer withholding.
  4. Set up payroll and deposit schedules (or hire a payroll provider).
  5. Estimate quarterly taxes and set up payment method (EFTPS/direct pay).
  6. Determine worker classification and set up 1099/W-2 processes.
  7. Track and remit sales tax by jurisdiction.
  8. Keep organized records and reconcile monthly.
  9. Review entity status annually and adjust tax strategy.

Professional disclaimer: This article is educational only and does not replace personalized tax advice from a licensed CPA or tax attorney. Verify state and local rules with appropriate agencies and consult a tax professional for decisions that affect your business structure or tax liability.

If you’d like, we can create a printable checklist or calendar you can download and adapt to your state and entity type.