9 Steps to Starting a Business in Idaho

If you're an Idaho resident considering setting up a business, you shouldn't think twice. Idaho ranks tenth on Forbes' annual "Best States for Business," and number two for its strong growth prospects.

In other words, it's time you let your entrepreneurial spirit fly. But how?

Here are nine steps to starting a business in Idaho.

1. Choose Your Business Idea

To make your business a success, you need a good idea. If you’re yet to produce one, conduct market research and study businesses already running successfully in your state.

Assess what's going right for them and find areas where they can improve. It is in these areas where you can outshine and get customers.

2. Make a Business Plan

A comprehensive business plan can help small business owners define their goals, clarify their strategy, and attract investment.

Here are some essential elements that a good business plan should include:

• The executive summary.
• A description of the business.
• The market(s) your company will operate in.
• Analyze your Strengths, Weaknesses, Opportunities, and Threats.
• Management team and personnel.
• The products or services offered.
• Marketing plan.
• A financial plan.

3. Decide Your Business Structure

There are different ways you can structure your business. These include -

Sole Proprietorship

There's no legal distinction between you and your business in this structure. It means that your personal and business expenses and revenue are the same.

Being one with your business makes management a cakewalk and tax season a breeze. You can just file your business's income on your personal tax return.

The simplicity of the structure also allows you to get started with your business faster without the need to go through a complicated registration process.

However, there are some downsides to this structure. Being one with your business makes you personally responsible for all the debts or obligations your business takes on. You also won't be able to secure investors with a sole proprietorship.

Partnership

A partnership structure is a good choice if you want to start your small business with a partner.

There are three types of partnerships: general, limited, and limited liability.

• General partnership - In this structure, each partner shares equal responsibility for the business's debts and liabilities.
• Limited partnership - In this structure, there's one general partner with unlimited liability and other partners with limited liability.
• Limited liability partnership (LLP) - This structure is a good choice if you want every business owner to enjoy limited responsibility. The structure protects every partner from losing their assets if the partnership faces a lawsuit or bankruptcy.

Limited Liability Company (LLC)

An LLC is a formal business structure that provides personal liability protection to its owners, also called members, from the company's debts or liabilities.

With this structure, you can also enjoy more flexibility in how you get taxed. For example, you can choose to be taxed as a sole proprietorship, partnership, S corporation, or C corporation.

Corporation

A corporation is a legal business entity formed by individuals, stockholders, or shareholders, to operate for profit. If you establish the business as a corporation, it will assume its own rights and obligations that'll be separate from its owners.

As a separate legal business entity, a corporation can sign contracts, sue and be sued own assets, pay taxes, borrow money, and lend money.

The two main types of corporations are C corporations and S corporations.

• C Corp - It is the most common form of incorporation and comes with double taxation. It means the corporation pays tax as a separate business entity, and the members of a C corporation also pay taxes on the profits they receive as dividends or distributions. Unlike the S corp, a C corp can have an unlimited number of shareholders and different classes of stock.
• S Corp - This type of corporation elects to be taxed as a pass-through entity. This means that the corporation does not pay taxes on its profits but rather passes them through to its shareholders, who report them on their personal tax returns. An S corp can only have no more than 100 shareholders and only one class of stock.

Which Structure Should You Choose?

Which structure is best for you will depend on several things, such as the type of business, the number of owners, the level of liability protection, the tax implications, the cost and complexity of setting up and running the business, and how much you want to protect your personal assets.

Consider these factors carefully and choose the structure that makes the most sense to you.

Talk to a lawyer or tax expert for more help figuring out the best business structure for your needs and goals.

4. Choose Your Business Name

To secure a name for your new Idaho business, you must:

• Register your business name - Your business name in Idaho should be unique. Make a list of all the names that you want to give your business, then look through the Idaho Secretary of State's Office database.
• Include certain words - Your business name should include certain words like "Limited Liability Company" or its abbreviations ("LLC" or "LLC") if you choose LLC as your structure. Idaho business corporations must include "Corporation," "Company," "Incorporated," or "Limited," or abbreviations of these words.
• Check federal trademarks - Search the US Patent and Trademark Office's site to ensure the federal government hasn't trademarked your name.
• Claim an online domain name and social media handles - If you're considering doing business online, you need a domain name and social media handles. Select an online domain name that goes with your formal name or DBA, and reserve social media handles similar to your domain, legal business name, or DBA.

5. Establish Your Business

According to the official Idaho government website, all businesses, regardless of whether they are home-based or not, must register their name and entity type with the Idaho Secretary of State (SOS) before starting their business activities.

This means that after you have chosen your legal structure, you must register it with the appropriate authorities. If you plan on starting an LLC or corporation, the name of your business will be registered as part of the entity registration process.

On the other hand, if you plan on starting a sole proprietorship or partnership, you must file an Assumed Business Name, also known as a DBA.

It's important to note that business registrations are public records, meaning any information you provide on the registration form will be accessible to the public. Lastly, you must be at least 18 years old to register a business in Idaho.

6. Obtain Business Licenses and Permits

Tax Registration

If you plan to sell goods, Idaho law requires you to register with the State Tax Commission (STC) to collect sales tax.

If you're going to hire employees, you must also register with the STC for withholding taxes.

You can register for both tax types and other business taxes online via the Idaho Business Registration System (IBRS) or on paper using Form IBR-1, Idaho Business Registration Form.

EIN

If your business is separate from you and has employees, you must get a federal Employer Identification Number (EIN) from the IRS.

However, even if your business structure doesn't require an EIN, obtaining one is still a good idea since banks often need an EIN to open accounts in a business's name, and other companies may require an EIN to process their payments.

You can apply for an EIN online without a filing fee. Having an EIN also adds credibility to your business and makes it easier to establish business credit. Complete this online application to get an EIN.

Regulatory Licenses & Permits

Various agencies in Idaho issue different licenses and permits. The state government website has a Business Wizard that you can use to help figure out what licenses and permits your particular business may need.

For information about local licenses and permits, check the websites for any cities or counties where you will do business.

Professional and occupational licenses

The state government's website's licenses section lists many professions and occupations requiring a state license. Check it out for the appropriate licenses.

7. Understand Your Tax Obligations

Here are the tax obligations according to business structures -

Sole proprietorships

One of the chief benefits of operating as a sole proprietorship is the simplicity with which it can be taxed.

There is no need for separate taxes for your business, as all income and losses can be reported on your personal income tax return.

It's important to remember to make estimated tax payments every quarter and to track all income and expenses diligently.

Partnerships

Partners must pay state taxes on partnership income on their individual tax returns. Idaho partnerships must also file Form 65, Idaho Partnership Return of Income.

LLC

Members must pay state taxes on their portion of LLC income on their personal tax returns.

LLCs must also submit a separate state tax form, either a partnership or corporation return. Depending on how the LLC is categorized for federal tax purposes, a specific form may be required.

Idaho LLCs must also file an annual report with the Idaho SOS.

Corporations

When shareholders get dividends from a company, they have to pay state taxes on them.

A salary-earning shareholder-employee must also pay state income tax on his or her own state tax return. Also, the corporation has to pay taxes to the state of Idaho. Lastly, businesses must give the Idaho SOS an annual report.

You must also pay state taxes as an employer if you have employees.

And there are always federal income and employer taxes on top of Idaho taxes. Check out IRS’ “Tax Guide for Small Businesses,” and “Taxpayers Starting a Business.”

8. Consider Buying Business Insurance

Business insurance is essential to save your company and assets from unexpected disasters. Here are some options that you should consider -

Commercial general liability insurance

A Commercial General Liability (CGL) policy is a type of insurance that shields businesses from financial claims related to property damage, injuries, false advertising, libel, and slander.

Professional liability insurance

Professional liability insurance is a must-have for any business that could face malpractice or gross negligence accusations. This policy offers essential protection against legal claims related to mistakes made on the job.

Whether running a small business or a large corporation, investing in professional liability insurance is a smart decision that will pay off in the long run.

Commercial property insurance

Business property insurance provides financial protection for businesses in case of loss or damage to their property, including real estate and cash.

Cyber liability insurance

Cyber liability insurance is a popular choice among companies that handle sensitive personal data, such as credit cards and Social Security numbers, as it provides coverage in the event of a digital data breach.

Unemployment insurance

Idaho employers are required to pay unemployment insurance, which is taxed. This insurance provides a safety net for employees who get laid off through no fault of their own and helps to mitigate the financial burden of job loss.

Workers' compensation insurance

Workers' compensation insurance. Any business in Idaho with one or more employees (even if they are only part-time or seasonal) must obtain workers' compensation insurance administered by the Idaho Industrial Commission. In the case of a workplace injury, this insurance covers your employee's compensation.

9. Open a Business Bank Account

Opening a separate business account is crucial for proper financial management for businesses of all types. In fact, for LLCs and corporations, having a separate bank account is necessary to maintain the corporate veil.

By separating business and personal finances, you can more easily track income and expenses, manage cash flow, and plan for the future.