Small business compliance with taxes rules and regultions

In order to remain in business, you’ll have to keep your company compliant with taxes, federal and state laws, and regulatory deadlines for your employees. It might save you money in the long run, and you’ll want to know how to get compliant now.

Key Takeaways:

  • Entrepreneurs should ensure they are in compliance with all applicable laws before beginning a new business venture, and existing business owners should do a checkup so they remain compliant
  • For companies and startups, there are a variety of legal requirements such as financial rules, tax requirements, and employment laws
  • First-year expenses like investigating and creating your business plan, equipment purchases, and forming your LLC or S Corp are tax deductible, but you must be aware of crucial restrictions, exclusions, and regulations to plan correctly

It’s not always fun to talk about, but it’s necessary to get the admin out of the way for most businesses to prevent legal problems later on. Taking care of compliance early on and automating processes can give you the peace of mind as a business owner to focus on other, more important things.

It can also keep you from having a miserable couple of months if you are unfortunate enough to make a major error. While we’re all human and make mistakes, the regulatory agencies and tax collector’s office don’t have time for such philosophical arguments.

A company’s potential exposure to legal repercussions, financial penalties, reputational harm, and monetary loss from failing to follow legal requirements, industry regulations, tax filings, offer required insurance, and other best practices can create a compliance risk.

Every type of organization, including public, private, for-profit, nonprofit, state, and federal, faces this kind of risk. Maintaining awareness of state and federal regulations, industry-specific legislation, and regulatory bodies is essential to avoiding compliance risks. 

Compliance with Small Business Rules and Regulations

There’s a lot of small business rules and regulations. But before you fret about what you’ll need, let’s focus on the benefits of meeting minimal compliance now.

Getting your business started on the path to compliance can mean:

  • Ongoing compliance with necessary standards and regulations, taxes, and laws
  • Protection against unfavorable internal audits, financial penalties, and legal action
  • Reduction in risk across the entire organization, including business risks, financial risks, operational risks, and security risks 
  • Reduced costs for the life of the business
  • Increased visibility into risks, threats, and vulnerabilities that could affect your business
  • Opportunities for tax deductions


Taxes are what most people think about immediately when they hear compliance in a business context. Taxes are a large part of doing business and often a source of worry. Paying them can help you avoid major problems. And, they’re pretty confusing. Especially when there’s so many different ways to pay.

How you form (or formed) your business is how you will file your taxes, all according to the rules of your state and federal requirements. That’s why it’s better to form a company now rather than spend years working as a sole proprietor, if you can.

What business expenses are tax deductible?

Most startup costs for a business are tax deductible. Examples of startup costs include insurance, forming an LLC or corporation, office equipment, payroll, marketing expenses, research and development costs, and utility services.

What happens if you don’t file or pay taxes on your business?

When a business that owes taxes doesn’t file a return or neglects to make a payment, files or pays late, or owes extra funds discovered in an audit, the State Department of Revenue starts the collection process. 

When a return is not filed, a delinquency notice (Notice of Delinquency) is sent, and when a return is filed late or more money is owed, a bill (Notice of Amount Due) is sent. When you receive a delinquency notice or bill, it is critical that you act quickly. Penalties and interest accrue until the full amount of the tax due is paid.

Automating Your Business Taxes, Employee Taxes, and Insurance Compliance

Time tracking and payroll software that auto-files your business taxes and connects employees to required ACA healthcare insurance is good for keeping up with the basic levels of compliance in several key regards.

Amortization and Depreciation Tax Deductions for Your Business

Depreciation is the term used to describe the decrease in the price of tangible fixed assets over the course of their useful lives, which is proportionate to the use of the asset in that particular year. Plants, equipment, machinery, buildings, and furniture are examples of tangible assets that are depreciated. 

Amortization is the process of lowering an intangible asset’s cost over time. Patents, trademarks, lease rental agreements, concession rights, brand value, and other similar intangible assets are examples of intangible assets that are amortized.  Amortization reduces your taxable income throughout an asset’s lifespan.

LLCs with at least two members are eligible for startup cost amortization. One-member LLCs cannot enjoy this privilege. You may write off $5,000 in organizational costs in your first year if your LLC has just one member and your startup costs were $50,000 or less. 

However, if your costs go over this limit, you must capitalize all of your costs, and you cannot deduct them until your LLC is dissolved.

Compliance for Employees

Labor is the largest cost of a business on average. And, you’ll have to pay a payroll tax, workers compensation, and be COBRA and ACA compliant.

The Federal Unemployment Tax Act (FUTA)

In addition to state reemployment and unemployment insurance tax, any business with employees is subject to a payroll tax under the Federal Unemployment Tax Act (FUTA). The money it brings in is distributed to state unemployment insurance programs, which then pay out unemployment benefits to unemployed people.

Workers’ Compensation Insurance

Workers’ compensation insurance offers financial aid and/or medical attention to employees who are hurt on the job or fall ill as a direct consequence of their duties. This insurance is paid for by the employer; the employee is not expected to contribute to the cost of compensation.

It’s usually required in most states if you have four or more employees, and is just one of the many forms of business insurance that reduce your overall risk and liability.

Affordable Care Act (ACA) Reporting Requirements – Employer Mandate

The Affordable Care Act mandates that reporting be made by applicable large employers (ALEs). In the previous year, ALEs had 50 or more full-time employees on average, including full-time equivalents (FTEs).  This distinction is important because only ALEs must comply with applicable ACA reporting requirements and are subject to the Employer Shared Responsibility (ESR) provisions of the Affordable Care Act (ACA).

Employers who meet the ALE threshold are required to provide sufficient and affordable health insurance coverage to full-time employees and their dependents in order to comply with the Affordable Care Act (ACA). 

If they fail to do so, they risk being subject to a fine if at least one full-time employee purchases health insurance through a government marketplace and receives a premium tax credit. Forms 1094-C and 1095-C must be filled out by ALEs in order to report details about the health insurance coverage provided to full-time employees and their dependents. 

If at least one full-time worker purchases healthcare coverage through a government marketplace and receives a premium tax credit, and the employer does not provide minimum essential coverage (MEC) to at least 95% of its full-time staff and their dependents, the employer may be subject to one type of employer shared responsibility payment (ESRP). 

After excluding the first 30 full-time employees, the payment is $2,000 per full-time employee (adjusted annually for inflation). The penalty is 4980H(a). A 4980H(b) penalty is also imposed if the ALE provides insurance to 95% of its full-time workers but the coverage provided does not satisfy the aforementioned requirements for minimum value and affordability. 

The fine is $3,000 per employee (adjusted annually for inflation) who used the IRS’s premium tax credit for people without access to affordable insurance.

Automated ACA software is often a feature of popular time management and payroll programs. 

COBRA Compliance

Group health insurance plans sponsored by employers with 20 or more employees in the previous year are generally required by COBRA to provide employees and their families with the option of a temporary extension of health coverage (referred to as continuation coverage) in some circumstances where coverage under the plan would otherwise end. 

What happens if a business declines to provide COBRA? There is no cap on the amount of medical expenses for which an employer may be held liable if they fail to give an employee access to COBRA or cannot demonstrate that they did so. 

This implies that you might be liable for costly medical claims for a very long time. 

Solutions to Common Governance, Risk Management and Compliance Problems

There are a couple of issues businesses must focus on to run their companies effectively, remain compliant, and reduce risk, including:

  • Protecting customer privacy – While the jury’s still out on the implementation of online privacy in online advertising the way it’s happened in recent years, the EU has protected how websites collect data on web visitors– and made personalized Facebook ads much more difficult for businesses. 

Still, it’s safe to say you shouldn’t be collecting your website visitor data and then selling it to third parties.

  • Protecting customer credit card data – The Payment Card Industry Security Standards Council agreed to implement the PCI Data Security Standard (PCI-DSS) in all of their security programs. This standard has evolved into the most effective weapon against persistent hackers who target payment card data.

Anyone who’s been the victim of card fraud at a major retail store knows the shock of reading your bank statement and seeing a massive unexplained charge.

  • Health Insurance Portability and Accountability Act (HIPAA) – A federal law known as the Health Insurance Portability and Accountability Act of 1996 (HIPAA) mandated the development of national standards to prevent the disclosure of sensitive patient health information without the patient’s knowledge or consent.

And while you’re expected to have some amount of your recordkeeping and books “in the cloud,” you could still be penalized if you lose data the government requires you to maintain, even in the event of a hurricane or other natural disaster, regarding employee history.

  • Industry-specific certification – While HIPAA is an example of a complex and frequently-changing set of laws specific to one industry, organizations like the Occupational Safety and Health Administration (OSHA) and the Environmental Protection Agency (EPA) regularly deploy regulation updates to a variety of different industries.

Showing the world your business complies with industry-specific protocols, testing and certification is usually a good look. As such, it can be seen as another marketing tool and example of your professionalism.

Example of Voluntary Business Compliance That Helps Customers and Your Company

Technically, you may not be required to have a digital SSL certificate for your website, which is a level of encryption that protects data transferred between users and websites by making it impossible to read. (The little picture of a padlock in your web browser means “SSL secured,” and most, but not all, professional websites have it.)

But, by having one, you’ll ensure no website visitor gets a warning like “the website you are attempting to access may be unsafe,” prompting them to have to click “I understand, but want to access it anyway,” which, let’s face it– most people won’t. And, in reality and on the plus-side, you will help consumers avoid phishing and identity theft.

Your website hosting company will usually offer the SSL option to you, which costs more per month. And in my opinion, it’s not optional.

Conclusion: Risk, Legal, and Tax Compliance for Small and Medium Size Businesses

Risk compliance consulting is often useful for more complicated businesses that must adhere to substantial amounts of regulation or are high-profile products/services. The more complex and nuanced the needs of the business, the greater the cost will be to automate the governance, risk and compliance (GRC).

Something of that scope may not be necessary for your first years in business, but it’s a good indicator of what businesses will have to address in the 21st Century. You can get started today by scratching the basics off your list. You’ll already be far ahead of everyone else and won’t get caught by surprise.

Frequently Asked Questions – Compliance for SMBs

I have a small business, how do I pay taxes?

It’s critical for business owners to comprehend their federal, state, and local tax obligations. This will assist you in timely payments and accurate tax filing. The type of business structure you select when opening a company will affect the taxes you’ll have to pay and how you’ll pay them. The majority of businesses are required to report all income and pay federal taxes on it. However, while filing an annual information return, partnerships do not pay income taxes.
Automating your tax filing can help you tremendously as a business owner since there are many different taxes you may have to pay excise taxes, employment taxes, property taxes, and unemployment insurance, as well as state tax and quarterly estimated tax.Small business compliance with taxes rules and regultions

What is HIPAA compliance?

The Health Insurance Portability and Accountability Act of 1996 (HIPAA), also known as the “HIPAA” regulations, sets forth the acceptable uses and disclosures of protected health information (PHI). Any demographic data that can be used to identify a patient or client of a HIPAA-beholden entity is considered to be protected health information (PHI), and accidental disclosures and breaches are considered a violation that may carry penalties and fines.

What is ACA compliance for businesses?

According to the Affordable Care Act (ACA), all companies with an average of 50 full-time employees are required to offer health insurance to at least 95% of their workforces or face fines (among other stipulations). It is crucial to make sure your company is ACA compliant because failing to do so may result in penalties for your company.