If you’re thinking about starting a business in Maryland, we have some great news. With a long list of appealing tax incentives and an easy business registration process, Maryland more than lives up to its state slogan: "We’re open for business!"

When you’re ready to join the ranks of business owners in a state that's famed for blue crabs and the stunning Chesapeake Bay, follow the steps in this guide to start a business in Maryland.

Checklist for starting a business in Maryland:

1. Create a business plan

2. Check zoning requirements

3. Choose a business structure

4. Name your business

5. Register your business

6. Open a business bank account

7. Arrange permits and licenses

8. Insure your business

9. Understand your tax obligations

10. Hire employees

11. Meet all employer requirements

1. Create a business plan

Even though creating a business plan adds an extra step to the process of starting a business, this initial step is essential.

A well-drafted business plan can help you:

  • Outline your start-up costs
  • Define your niche and understand your competition
  • Develop well-planned profitability strategies
  • Define short- and long-term goals
  • Know when to hire and build a team
  • Attract investors and raise capital

2. Check zoning requirements

Zoning regulations aren’t uniform across the entire state of Maryland. And while Maryland declares itself as “open for business,” zoning laws and local ordinances can still bring your service business dreams to a halt.

Check the zoning rules in the area you plan to operate via Maryland's local departments of planning. You should also check with your landlord, HOA, and city to ensure your business is allowed to operate in the area.

3. Choose a business structure

Every business in Maryland needs to choose a legal business structure (aka “a business entity”). Each structure will impact your business’ formation, ownership, control, funding options, size, taxation, and more. The trick is to choose a business structure that’s right for your service business.

Here are the types of business structures in Maryland:

  • Sole proprietorship
  • General partnership
  • Limited partnership
  • Limited liability company
  • Stock corporation
  • Tax-exempt nonstock corporation
  • Close corporation
  • Domestic nonstock corporation
  • Religious corporation
  • Non-Maryland limited liability company
  • Non-Maryland corporation

Ask an attorney to advise you on the best business structure for your business. And check out our guide to common business structure types to compare your options.

4. Name your business

To name a business in Maryland, you’ll need to come up with a business name that isn’t already in use and check that it complies with state and local naming requirements.

Here’s how to name a business in Maryland:

  • Use Maryland Business Express’ Business Name Search tool to check that the name you want to use isn’t already in use.
  • If the name is available, you can make it official by registering your business with the state (see next step).
  • If the name is available, but you’re not ready to register it just yet, you can reserve it by submitting this form and paying a $25 fee.

If you’re planning to operate as a Sole Proprietorship or General Partnership in Maryland, keep in mind that these business entities are filed and registered with the State Department of Assessments and Taxation under the name of the owner(s). If you want to do business under another name, you’ll need to register a trade name (also referred to as a “Doing Business As” or DBA) and pay a $25 filing fee.

5. Register your business

Congrats—it’s time to register your business in Maryland! Thankfully, the Maryland Business Express’ online portal makes registering a new business easy and accepts online filings for most business entity types.

Unfortunately, a lot of extra paperwork is involved in obtaining the additional identifiers you’ll need to start operating a business in Maryland.

Here are the steps to registering a business in Maryland:

  1. Register your business online via Maryland Business Express.
  2. Receive an SDAT Identification Number. Once your application to register your business has been approved, you'll receive an SDAT identification number from The Department of Assessments and Taxation. This number serves as Maryland’s unique identifier for your business. SDAT is a required ID number for all business structures, including sole proprietorships and general partnerships if they wish to open a business account.
  3. Obtain an EIN from the IRS. Many businesses in Maryland also need a Federal Employer Identification Number (FEIN)—also known as an EIN—from the IRS. This identifier is used for paying federal and state taxes, hire employees, and apply for loans and bank accounts. This number is also required to obtain a Central Registration Number, which is used for Maryland taxes owed, including employee withholding taxes.
  4. Obtain a Central Registration Number. This eight-digit number is assigned to your business if it opens a state withholding account. If necessary for your business, you can obtain your Central Registration Number online through the Comptroller of Maryland's Office via the Maryland Combined Registration Online Application. You will get your Central Registration Number in approximately 5-7 business days.

Note that Sole Proprietors or General Partnerships with no employees may not necessarily need to register their business with the state. However, if you plan to open a business bank account, you’ll need to register your Sole Proprietorship or General Partnership with the state.

How much does it cost to register a business in Maryland?

The cost to register a business in Maryland ranges from $25 (Sole Proprietorships, Partnerships) to $600 (Non-Maryland LLCs and LLPs).

Here's what it costs to register a business in Maryland:

  • Sole proprietorship: $25
  • General partnership: $25
  • Stock corporation: $445
  • Domestic limited liability company (LLC): $425
  • Domestic limited partnership (LP): $425
  • Non-Maryland limited liability company (LLC): $600
  • Non-Maryland limited liability partnership (LLP): $600
  • Tax-exempt nonstock corporation: $495
  • Close corporation: $495
  • Non-Maryland corporation: $600
  • Domestic nonstock corporation: $195
  • Religious corporation: $495

You can refer to the Maryland Business Express fee schedule to view a breakdown of Maryland business registration costs and current processing times. Remember that the total cost for starting your business will also factor in licensing fees, permits, and any equipment you may need for your business.

6.  Open a business bank account

With your business registration complete, it’s time to open up a business bank account. You may also want to consider a business credit card—if you can pay it off in full each month, having a business credit card can build a good credit score for your business over time.

Although sole proprietors and general partnerships are the only two business structures that can technically run their business expenditure via a personal business account (since you and your business are one and the same), it’s still a good idea for every business to manage and track income and expenditure via a separate business bank account.

To register a bank account in the name of your business in Maryland, you’ll be required to use an Employer Identification Number (EIN). This is essentially a Social Security Number for your business.

Local, national, and neo banks all have perks and privileges, so choose a bank that works best for your business’s needs. Consider location, fees, how easy it is to reach their customer support in person, online, and on the phone.

7. Arrange permits and licenses

Depending on your business type and industry, you may be required to apply for a business permit and licenses to Maryland's state and local governments. Certain professions and services may also need special permits to operate— accounting or architecture, for example.

Use Maryland's has a one-stop portal that is a centralized database of Maryland State licenses, forms, certificates, permits, applications, and registrations. Use it to determine which permits and licenses your business may need (if any).

And if you're unsure about this step, work with a business attorney or CPA to get it right. Operating without the required permit and license may result in your business being forced to shut down, or you may be subject to hefty fines.

8. Insure your business

Whether or not your business is based at home or elsewhere, you should consult with an insurance professional to determine what types of insurance you should acquire for your business.

Home-based businesses are often underinsured, but they should have the proper insurance to protect the business’ assets and its owners against certain risks. Property and liability insurance is generally important for home-based enterprises.

Here are five types of business insurance you may need in Maryland:

Commercial auto insurance

Any automobile registered in the state of Maryland is required to purchase automobile insurance. Commercial Auto Insurance differs from regular personal auto insurance by the amount of coverage. Commercial insurance offers more extensive coverage and may be extended to cover rented and non-personally owned vehicles that are used for business operations

Liability insurance

Liability Insurance can protect your business from monetary loss and expenses caused by property damage, bodily injury, injury to one’s reputation caused by slander and libel, and also the harm caused by false or misleading advertising. Depending on the coverage you purchase and whether or not your business is found liable, your insurance provider may pay for all the damages, or you may have minimal out-of-pocket expenses. Some of the damages will be paid by your insurance provider. Liability insurance is essential, especially for new and small businesses that can significantly affect a big lawsuit or liability payment.

Property insurance

Property insurance may shield small business proprietors from economic losses because of harm to their professional property, which can encompass the company's physical workspace and equipment. According to insurance standards, a business' property includes the physical structure where the business is located - provided that the company owns the building.

With property insurance, you can buy either actual cash value (ACV) or replacement cost (RC) coverage. ACV insurance gives you money back for lost, damaged, or stolen items after the insurance company subtracts the depreciation. RC insurance pays you the amount it would cost to replace or rebuild something.

Business interruption insurance

Business Interruption or Continuation Insurance pays for the costs of running a business, like payroll and utility bills, when the business can't operate for a long time because of something like a fire. This type of insurance protection usually isn't activated until a particular amount of time has elapsed after a covered loss that causes the business to close. The policy will list the time period.

Workers compensation insurance

Maryland, like all states, requires businesses to carry workers’ compensation insurance for their employees. This insurance protects a business and its owner(s) from claims by employees who suffer work-related injuries, illnesses, or diseases. This insurance protects a business and its owners from being sued by employees who get hurt, sick, or have an illness from work.

9. Understand your tax obligations

The amount of taxes you pay—and the tax incentives your business can leverage—will depend on your business structure, industry, and other factors.

We strongly advise all service business owners to find and work with a CPA while setting their businesses up. A qualified professional can help you understand your tax obligations and outline all the filing deadlines you’ll need to be aware of throughout the year.

Sole proprietorship and pass-through entities taxes in Maryland

If you run a sole proprietorship in Maryland, you would file the same as an individual using Form 502. Your net profit or loss is combined on the return with your other income and deductions and taxed using individual tax rates.

Sole proprietors generally do not have taxes withheld from their income, so they usually make quarterly estimated tax payments. The Maryland form for quarterly estimated tax payments is Form PV.

Pass-through entities

Some business entities can be classified as pass-through entities. Pass-through entities are businesses taxed on a personal income level, not at a corporate level. Business entities in Maryland that are considered pass-through entities are Partnerships, LLCs, S-corps, and Business Trust. Businesses that qualify as such must file Pass-through Entity Income Tax Return (Form 510).

Pass-through Entities must pay a tax consisting of 5.75%. A special nonresident tax of 2.25% may be added (for a total of 8.0%), to the nonresident individual and nonresident fiduciary members'.

Pass-Through Entities also have to pay an 8.25% tax on income that goes to Maryland for all members who are not resident entities.

Corporate taxes in Maryland

Every corporation and association (except those tax-exempt, like religious corporations) that have income that can be allocated to the state of Maryland must file an income tax return with the state. The corporate tax rate is 8.25 percent of the net income that can be allocated to Maryland. Compared to the top rates of surrounding and competing states, Maryland's corporate tax rate is lower.

How to apply for tax exemption in Maryland

Tax exemptions are available for certain business entities in Maryland: non-profits, tax-exempt nonstock corporations, and religious corporations.

To be able to legally benefit from tax exemption in Maryland, you first need to file with the IRS for Federal Tax Exemption using the following forms:

  • Form SS-4: Application for Employer Identification Number
  • Form 8718: User Fee for Exempt Organization Determination Letter Request;
  • and Either: Form 1023: Application for Recognition of Exemption for 501(c)(3) Organizations; or Form 1024: Application for Recognition of Exemption for all other exempt statuses.

Once the IRS approves your tax exemption, you can then file for a state-tax exemption with Maryland.

The Comptroller of the Treasury is the state agency responsible for approving an exemption from Maryland income tax. To apply for a state income tax exemption in Maryland, your organization should submit the following to Maryland's Revenue Administration Division:

  • A request for exemption from Maryland income tax
  • An explanation of the nature, purpose, and scope of your organization
  • A copy of the IRS tax determination letter
  • A copy of your organization's by-laws
  • Your organization's latest financial statement

Many factors will determine your business's qualification for tax exemption. Follow the proper steps and hire a qualified professional to help with this process.

Tax incentives in Maryland

The state of Maryland offers some fantastic incentives to support new businesses and attract new companies to the state. Work with a CPA to see if your service business can leverage any of these benefits.

Some of Maryland’s tax incentives include:

  • No corporate franchise tax
  • No unitary tax on profits
  • No gross receipts tax on the manufacturer
  • No tax on intangible property
  • No separate school taxes
  • No income tax on foreign dividends (if the corporation owns 50% or more of the subsidiary)

Maryland also offers other tax incentives and programs like venture capital investments, tax credits, direct loans, grants, and loan guarantees. Learn more via the Funding and Incentives section of the Maryland Department of Commerce.

10. Hire employees

If you plan to hire employees to help your business grow, there’s a lot to do before you can officially say: "You're hired!"

Here are the steps to hire an employee in Maryland:

  1. Register as an employer. To do this, obtain an Employment Identification Number (EIN), complete Maryland’s Combined Online Registration, and obtain an Unemployment Insurance Tax Account Number.
  2. Verify employee eligibility. Every new employee must fill out form I-9, Employment Eligibility Verification Form from U.S. Citizenship and Immigration Services. The I-9 Form is used to confirm citizenship and eligibility to work in the U.S.
  3. File a Withholding Allowance Certificate. Your prospective employee will need to fill out a Withholding Allowance Certificate (form W-4) on or before they start working. This form will show how much federal income tax will be withheld from their paycheck.
  4. Report your new hire. Maryland employers must report newly hired and rehired employees to the Maryland State Directory of New Hire within 20 days of the date of hire or rehire. The Maryland New Hire Registry Reporting Form can be submitted online to the Maryland State Directory of New Hire.

11. Meet all employer requirements

Employers in Maryland also need to comply with a few legalities and requirements. It is important that you meet all these requirements or you may be subject to hefty fines and open yourself up to liabilities down the road.

Here are some key employer requirements in Maryland:

Payroll taxes

There are several taxes you need to file, namely, Federal Income Tax Withholding (Form W-2 with the IRS), State Income Tax Withholding (Maryland form MW507), Unemployment Insurance, Social Security, and Medicare.

Workers compensation insurance

Workers Compensation Insurance is done through Maryland Worker's Compensation Commission. All businesses with employees must have workers’ compensation insurance to cover medical costs if employees are injured on the job.

Labor law posters and required notices

Maryland businesses must hang Federal and State of Maryland labor law posters where employees can see them easily. These posters tell employees about their rights and their employer's responsibility under labor laws. These labor posters can be found on the Maryland Department of Labor’s website.

Refer to the Maryland Guide to Wage Payment and Employment Standards for full details.

Ready to start a business in Maryland?

With an easy registration process and a range of appealing tax incentives, Maryland really is “open for business.” Use the steps in this guide to start a business in Maryland. And once you’ve made it through the business registration, stick around and give Durable a try.

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