Starting a Small Business Tax Tips
If you plan to start a new business, or you’ve just opened your doors, it is important for you to know your federal tax responsibilities. Here are five basic Starting a Small Business Tax Tips from the IRS that can help you get started:
- Type of Business. Early on, you will need to decide the type of business you are going to establish. The most common types are sole proprietorship, partnership, corporation, S corporation and Limited Liability Company. Each type reports its business activity on a different federal tax form.
- Types of Taxes. The type of business you run usually determines the type of taxes you pay. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.
- Employer Identification Number. A business often needs to get a federal EIN for tax purposes. Check IRS.gov to find out whether you need this number. If you do, you can apply for an EIN online.
- Recordkeeping. Keeping good records will help you when it’s time to file your business tax forms at the end of the year. They help track deductible expenses and support all the items you report on your tax return. Good records will also help you monitor your business’ progress and prepare your financial statements. You may choose any recordkeeping system that clearly shows your income and expenses.
- Accounting Method. Each taxpayer must also use a consistent accounting method, which is a set of rules that determine when to report income and expenses. The most common are the cash method and accrual method. Under the cash method, you normally report income in the year you receive it and deduct expenses in the year you pay them. Under the accrual method, you generally report income in the year you earn it and deduct expenses in the year you incur them. This is true even if you receive the income or pay the expenses in a future year.
For more information, check out the Business Taxes page on IRS.gov. From there, review the special section on Starting a Business. Publication 583, Starting a Business and Keeping Records, may also help new business owners with the tax aspects of running a business. If you would like a hard-copy of this IRS booklet, call 1-800-TAX-FORM (1-800-829-3676).
(The above content was taken from IRS Summertime Tax Tip 2013-02, dated 7/3/2013)
There are a number of tax issues that you may not be aware of when making these decisions that you should fully understand. It never hurts to speak to Tracy Bressler, CPA and get a professional opinion based on both knowledge and experience from working with hundreds of other small businesses over the past 26 years. It’s too easy to make a very costly mistake, especially when choosing your type of business.
Call Bressler & Company at 559.924.1225, make an appointment for a business consultation with Tracy Bressler, and receive a free copy of one of the books we recently published specifically for small businesses: “The Successful Business Guide”, which gives you all the specific tax and financial information you need right at your fingertips, or “57 Ways to Grow Your Business”, full of proven successful strategies to grow your business and market your brand!