Thinking of starting a business in Indiana? The Hoosier State’s low costs for doing business and low costs of living combine with a business-friendly regulatory environment and well-built infrastructure to attract people planning to start businesses. On the other hand, according to one survey of American states, Indiana’s quality of life is below average. Here’s what you should know, including business licenses and insurance requirements.
How Indiana Ranks
Several organizations have ranked Indiana above average when it comes to having a business-friendly environment. The Tax Foundation had the state as the 10th best in its 2019 State Business Tax Climate Index. The Small Business & Entrepreneurship Council ranked Indiana as the sixth most entrepreneur-friendly state under its Small Business Policy Index 2019. A somewhat less sanguine view came from the World Population Review, which in its Quality of Life by State 2020 report put Indiana’s quality of life at No. 36 among American states.
Make a Business Plan
As is the case with any new business, starting a business in Indiana starts with a good business plan. That begins with selecting a product or service to offer. Usually entrepreneurs elect to sell a product or service that fits their abilities and interests. Demand in the market area is also a crucial concern.
Indiana businesses can tap into well-developed industries, including manufacturing, especially of automobiles, automobile parts, pharmaceuticals and transportation. The state borders Lake Michigan on the north and is a major exporter to Canada. The cost of doing business in Indiana is one of the lowest in the country, and its infrastructure is also well regarded.
Sales and marketing are the next important parts of a business plan. A viable plan for an Indiana business will recognize that, while much of the state is rural and agricultural, the northwest is part of the Chicago metropolitan area and more industrial.
The staffing portion of a business plan could be challenging. Indiana’s crime statistics, quality of healthcare, level of health insurance coverage and the overall health of the population are below average. The World Population Review deems Indiana’s education system the 24th best in the country.
Financing a new business can occur in a variety of ways, including the founder’s savings, loans and investments from friends and family, bank loans and peer-to-peer lending. In Indiana, a number of government-sponsored business startup financial incentives can help. They include grants, tax credits, rebates and exemptions and other assistance.
Choose a Business Structure
There are four main types of business structures: sole proprietorship, various kinds of partnership, corporation and limited liability company (LLC). The choice of entity can make a difference in the founder’s personal liability for business debts, on the business’s long-term growth prospects and more.
- Sole proprietor. The simplest business structure recognizes no difference between the owner and the business. The owner is responsible for all business obligations and business profits are reported on the owner’s individual return. Sole proprietorships don’t have to file with the Indiana Secretary of State before getting underway.
- General partnership. A general partnership is formed when two people go into business together. Similar to a sole proprietorship with one owner, partners in a partnership are responsible for debts incurred by the business and by the other partner or partners. Business profits are reported on a partnership return but are taxed only once, on the partners’ individual tax returns. Partnerships don’t have to file with the Indiana Secretary of State.
- Limited partnership. This type of partnership shelters limited partners from business liability, while the general partner shoulders liability as well as day-to-day management duties. Limited partnerships are taxed similarly to partnerships. Limited partnerships have to file certificates with the Indiana Secretary of State. This can be done through the INBiz website.
- Limited liability partnership. This partnership has no general partner and the limited partners are sheltered from most personal liability for business debts. Limited liability partnerships are taxed similarly to other partnerships. Limited liability partnerships have to file a registration on the INBiz website.
- Corporation. These kinds of business structures offer liability protection to owners and can raise money by selling shares. Corporations must file tax returns and pay tax on profits. Owners report dividends on their individual returns and pay taxes at their individual rate. S corporations are corporations that elect to pass through profits directly to owners without being taxed first. Corporations must file certifications of incorporation at the INBiz website.
- Limited Liability Companies. LLCs provide liability protection to owners and may be treated as a partnership or corporation for tax purposes. LLCs must file articles of organization with the INBiz website.
Register the Business Name
A business operating under anything other than its official name has to file a certificate of assumed business name with the Secretary of State. The business name must be unique. Before filing a business entity with the Secretary of State, owners of businesses other than sole proprietorships and general partnerships should do a name search with the state’s online name availability check tool.
Get Tax ID Numbers
Businesses must set up tax accounts and obtain tax numbers for both federal and state governments.
Registering with the Internal Revenue Service provides a federal Employee Identification Number. The EIN lets employers withhold taxes on worker wages and salaries and file the business’s federal tax return. Sole proprietorships and single-member LLCs don’t need an EIN. They can use the owner’s Social Security number.
Indiana businesses can get state tax ID numbers online at the INBiz website. The websites for the Indiana Department of Revenue and the Indiana Department of Workforce Development also have information and filing resources.
How Businesses Are Taxed
Indiana’s corporate income tax is 5.5%. As the last in a series of reductions, it will go down to 4.9 percent on June 30, 2021.
Indiana’s state sales tax is 7%. A 7% use tax is levied on property purchased by a business without paying sales tax.
The state also collects personal property taxes on some business equipment. Computer software and inventory are not taxed.
Obtain Licenses and Permits
There’s no general statewide business permit requirement in Indiana. Different state agencies regulate specific businesses, including those in health, daycare, financial services and transportation.
In addition, professional licenses are required for professions from athletic trainers and auctioneers to real estate agents and veterinarians. More information is available at the state Professional Licensing Agency.
The Bottom Line
Indiana businesses enjoy a light burden of regulation and low costs. The state’s corporate income tax is shrinking and it has a strong export economy, but quality of life lags most states. These factors are among those to keep in mind when considering Indiana as a place to start a business.
Resources for Starting a Small Business
- Many financial advisors specialize in helping small business owners with their financial plan. Finding the right financial advisor who fits your needs doesn’t have to be hard. SmartAsset’s free tool can match you with up to three local financial advisors, and you can choose the one who is best for you. If you’re ready, get started now.
- Some parts of starting a small business are the same no matter where you plan to operate. Here are some of the basic requirements for beginning a new enterprise. Also, Indiana publishes “Business Owner’s Guide” with a wealth of details on starting a business in the state. It’s viewable online or available for download.
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