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How To Start a Business in New Jersey

Are you thinking of starting a business in New Jersey? Before you order new business cards, you might want to take a look at the Tax Foundation’s 2019 State Business Tax Climate Index. It ranked the Garden State in last place for states with a business-friendly tax climate, due to having one of the highest property tax burdens in the country and the second-highest corporate income tax rate.

Of course, taxes aren’t the only consideration when starting a business, and the state’s proximity to New York City is a plus. So if your heart is set on starting a business in New Jersey, read on to learn more about how to go about getting your business established and best manage the cost of doing business there.

How to establish a business entity in New Jersey

Are you ready to get started? Here’s your step-by-step guide to the process for creating a business in New Jersey.

Step 1: Choose a business name

Before selecting a business name, you should review business names already on file with New Jersey to ensure the name isn’t already taken. Checking to see if that name is already in use is free online, but if you need help checking availability from New Jersey’s Division of Revenue and Enterprise Services, a fee may apply.

You may also want to trademark your business name with the U.S. Patent and Trademark Office. While registering a trademark isn’t required, it can help prevent others from starting a new business (in New Jersey or elsewhere) with the same name.

You may also choose to trademark your business name in New Jersey for $50. However, you should keep in mind that a state trademark is only valid within the state. If you plan to eventually expand beyond state borders, you should consider filing a federal trademark instead.

Sole proprietors don’t need to register their business name with the state, but do need to register with their county clerk.

Step 2: Select a business entity

The business entity, also known as a business structure, is how your business is legally organized to do business. There are four primary business entities: sole proprietorship, partnership, limited liability company (LLC) and corporation. Each type has its own benefits and limitations, so it’s a good idea to talk to an attorney or accountant to determine the business entity that fits your situation and long-term plans.

Step 3: Record your new business entity

All entities other than sole proprietorships must file a formation/authorization certificate with the State of New Jersey. You can complete the filing process online or by following the instructions to file by mail included in the New Jersey Complete Business Registration Packet. The cost to file is $125.

Step 4: Apply for a federal tax identification number

An Employer Identification Number (EIN) is a nine-digit tax identification number businesses receive from the IRS. This number is like a Social Security number for an individual, as it is used to track tax returns and payments and open bank accounts.

Sole proprietors are not required to apply for an EIN, but it’s usually preferable to using the owner’s Social Security number for the business and will be used for tax purposes with the state of New Jersey. Partnerships, LLCs and corporations are required to file for an EIN.

Fortunately, applying for an EIN online takes just a few minutes, is free of charge, and you’ll receive your EIN immediately.

Step 5: Register your business for tax and employer purposes

All entities in New Jersey, including sole proprietors, must register for tax and employer purposes by filing Form NJ-REG. You submit your application online or by mail.

You will need your EIN, as it is also used as your New Jersey tax identification number.

If you have to register your business as described in Step 3 above, you can submit both your business entity and tax registration filings together. If you submit your applications separately, your tax registration must be submitted within 60 days of filing the new business entity.

Step 6: Obtain licenses

Some occupations and business activities are required to obtain some form of registration, license, permit or certification from the State of New Jersey. Examples include accountants, attorneys, medical professionals, beauticians, daycare centers and contractors. You can find a complete list of the types of occupations that require a license or permit and the agency that oversees licensure, in the NJ License & Certification Guide.

Individual counties and municipalities may require their own business license or permit. Contact the county or city in which your business is located to determine your licensing requirements.

Fees for those licenses will vary depending on the type of license or permit required. A home contractor, for example, must pay a fee of $110.

Costs of starting a business in New Jersey

In addition to the registration and licensing fees mentioned above, there are a few other costs involved in starting a business in New Jersey.

Income taxes

All businesses are responsible for paying federal income taxes, and New Jersey levies a state income tax as well.

As of the date of publishing, New Jersey’s corporate business tax rate is 9% on the business’s entire net income, or the portion allocable to New Jersey. Very small businesses get a tax break. For corporations with a net income of $50,000 or less, the rate is 6.5%. For corporations with net income between $50,000 and $100,000, the rate is 7.5%. However, the following minimum tax thresholds apply:

New Jersey Gross Receipts Minimum Tax
Less than $100,000 $500
$100,000 to $249,999.99 $750
$250,000 to $499,999.99 $1,000
$500,000 to $999,999.99 $1,500
$1,000,000 and above $2,000

Sales and use taxes

Many state and local jurisdictions impose a sales tax on the sale of a product or service from a seller to a consumer. Generally, a business adds sales tax to the sales price of their product or service, charges it to the purchaser, and then remits the collected sales tax to the state.

Use tax applies to products and services sold to customers located outside of the business’s state.

In New Jersey, the combined sales and use tax rate is 6.625% as of publication and is levied on all sales of tangible personal property, specified digital products, and some services. The New Jersey Sales Tax Guide provides a list of common services and whether the service is taxable or exempt from tax.

Other taxes

Certain business may face other taxes depending on the types of products they sell. Examples include retailers and distributors of alcoholic beverages, providers of cosmetic procedures, and sellers of fur clothing. You can learn more about these taxes on the Division of Taxation website.

Insurance

Businesses carry a variety of insurance policies. Some are required of all businesses; others are optional.

  • Unemployment and disability insurance. This offers employees some protection while they are unemployed through no fault of their own or temporarily disabled. In New Jersey, both employers and workers contribute to the unemployment and disability funds. You can find more information on rates through the New Jersey Department of Labor and Workforce Development.
  • Workers compensation insurance. This covers lost wages, medical benefits and permanent disability compensation for employees who are injured on the job. All New Jersey corporations must carry workers compensation insurance, even if the corporate officers are the only employees. Partnerships, LLCs and sole proprietorships are only required to purchase workers compensation if they hire one or more individuals other than the partners, members of the LLCs or principal owners. Rates vary by job classification.
  • Health insurance. New Jersey businesses with 50 or more employees must provide “minimum essential” health care coverage for employees who work 30 or more hours per week. Businesses with less than 50 employees are not required to provide health insurance coverage for employers, but offering health benefits can help an employer attract and retain talent.

The following types of insurance aren’t required in New Jersey, but might be a good idea.

  • Liability insurance. Protects you, your employees and customers in the event of an accident.
  • Commercial property insurance. Covers your company’s physical assets, such as buildings, equipment, futures and inventory in the event of theft, vandalism, fire damage or another similar incident.
  • Commercial auto insurance. Protects your business and its employees while operating a business vehicle.
  • Business interruption insurance. If your business must close due to a fire or other unforeseen event, this helps cover lost income and keep the business afloat.

Resources for new businesses in New Jersey

If you need help financing your business, there are several state-specific and national programs available. Some good places to start include:

  • The New Jersey Economic Development Authority (NJEDA) provides financial assistance to small, minority-owned or women-owned businesses through its Small Business Fund. Businesses can borrow up to $500,000 with fixed interest rates. However, it must be in business for at least one full year to qualify.
  • The NJEDA also offers a Small Business Lease Assistance Program, which reimburses 15% of a business’ annual lease payments for two years of a five or ten-year lease. Applicants must plan to lease between 500 and 5,000 square feet of first-floor, market rate office, industrial or retail space in an eligible area.
  • The U.S. Small Business Administration New Jersey District Office maintains a list of New Jersey lenders that make SBA loans.
  • The New Jersey Small Business Development Center provides a number of services for new and established small businesses in the state. While the NJSBDC doesn’t offer small business loans directly, it does offer workshops designed to help entrepreneurs navigate small business financing resources. It also offers counseling and training workshops that cover other aspects of owning a business.

The bottom line

With its diverse population, proximity to major metropolitan areas and educated workforce, New Jersey may be a great place to start your entrepreneurship adventure or expand an existing business. Begin with the steps above to get your business registered, licensed and insured and get your business started on the right foot. Getting started the right way — and avoiding costly legal and tax issues — will give your business the best chance to succeed.

 

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