For millions of Minnesota residents, starting a business and becoming an entrepreneur is a dream. With practically unlimited scheduling flexibility and an opportunity to build long-term wealth, there are few career opportunities as enticing. But before you can start generating revenue, you need to choose your business structure and get your tax ID numbers.
Minnesota is home to more than 513,000 small businesses, which represent 99.5 percent of all businesses in the state. Together, they employ a massive 1.2 million people, or 47.8 percent of the Minnesota working population. These small businesses have a significant impact on the economy of the state, responsible for generating 34,242 net new jobs in 2018, and among those small businesses are 7,191 exporters, which support the state’s economic position in the country.
Form a Business in Minnesota
When forming a business, you’ll need to decide on a formal structure that complements your business goals. One of the top considerations for starting a business is taxation. In a sole proprietorship or partnership, you (and your partner) will be taxed as an individual on any money you make in the business. This makes things simple, but doesn’t give you much flexibility. In a limited liability company (LLC), you can treat the company as a pass-through entity. This means the company doesn’t owe taxes on income, but you’ll pay taxes as an individual on any money you take from the business as profit or salary. Corporations must pay taxes on any eligible income they make, and you’ll also pay taxes as an individual on money you take from the business, resulting in double taxation. The corporate income tax rate in Minnesota is a flat 9.8 percent, making it one of the highest income tax rates in the country.
You’ll also need to consider liability. In a sole proprietorship or partnership, you’ll have no liability protection; you’ll be personally accountable for any and all business decisions you make. You’ll also take on all debts personally. LLCs and corporations provide liability protection, since they’re treated as separate legal entities. Corporations tend to provide more liability protection than LLCs.
Then, you’ll need to think about complexity. Sole proprietorships and partnerships are easy to start, so they appeal especially to new entrepreneurs. They’re also easy to manage and maintain over time. LLCs are slightly more complex, but corporations are the most complex by far. They can offer public shares as a way to raise funds, but in return, they’re required to follow much stricter rules and regulations. They’re also harder to start and maintain, since they require more paperwork and upkeep.
Federal Tax ID (EIN) Number Obtainment
The majority of Minnesota companies will need a federal tax ID number for one reason or another. This is a 9-digit, unique identifying number somewhat similar to a social security number. It’s given to businesses when they register with the federal government, and is sometimes called an employer identification number, or EIN.
You’ll need one under several conditions. It’s necessary for any business with multiple members, as well as any business that’s going to hire employees. You’ll also need an EIN if you’re going to open a business bank account, if you’re going to apply for a loan, or if you’re applying for business licenses and permits. Using our federal tax ID number obtainment services is the easiest and fastest way to accomplish this. All you’ll have to do is answer a few questions about your business using our online form, and you’ll receive your tax ID via email in under an hour.
Minnesota State Tax ID Number
You may also be required to have a Minnesota state tax ID number. Though similar in name, this number applies at the state level and is used for different purposes. You’ll need one of these if you’re going to hire employees in the state of Minnesota, if you’re selling taxable goods and services in the state, or if you’re going to owe excise taxes on regulated goods like gasoline, alcohol, or tobacco.
You’ll need to get a federal tax ID number before you can apply for your Minnesota state tax ID number. When you’re ready, make use of our Minnesota state tax ID number obtainment services to make things easy on yourself. Simply answer our online questionnaire, and you’ll receive your Minnesota state tax ID number in 4 to 6 weeks.
Localized Licenses and Permits in Minnesota
Business licenses and permits are regulated at both the state and local levels. Just at the state level, there are more than 680 potential types of licenses available. Accordingly, there’s no single recommendation for which licenses and permits to get, nor is there a single agency where you can get every form of certification or documentation you may need. Your best bet is to contact your local Chamber of Commerce and see what licenses and permits you might need to operate in your chosen area. Be aware that you’ll need to have your federal tax ID number to apply.
Recently, Minnesota’s economy has been growing slower than the national average. However, there are some key advantages in the state that keep it growing consistently, including a diversity of different industries. Because so many different types of businesses can thrive in the state, no single industry disruption is enough to make a significant negative impact.
Every entrepreneur can benefit from a faster, more convenient startup process. Use our federal tax ID number and Minnesota state tax ID number obtainment services to get the tax IDs you need and start your business as quickly as possible.