Tips for Starting a New Business
Anyone starting a new business should be aware of their Federal and State tax responsibilities. Here are the top seven things to consider if you plan on opening a new business in the near future:
1. First, you must decide what type of business entity you are going to establish. The type your business takes will determine which tax form you have to file. The most common types of business are the sole proprietorship, partnership, corporation and S corporation.
2. The type of business you operate determines what taxes you must pay and how you pay them. The three most common types of business taxes are income tax, self-employment tax and employment tax.
3. An Employer Identification Number is used to identify a business entity. Generally, businesses need an EIN. Visit IRS.gov for more information about whether you will need an EIN. You can also apply for an EIN online at IRS.gov. You may be required to have additional State business registrations. The registration requirements are specific to each State and are best discussed with a business tax advisor.
4. Good records will help you ensure successful operation of your new business. You may choose any record keeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for tax purposes.
5. Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.
6. Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.
7. Visit the Business section of IRS.gov for resources to assist entrepreneurs with starting and operating a new business. You can find additional resources at your State’s website as well as through the Small Business Administration.
Taurus CPAs works with business owners every day. We are passionate about advising and educating entrepreneurs. We can provide guidance to help you establish a new business, setup your accounting systems and maintain compliance with the Federal and State tax filing requirements. Please contact Brett or Tammy to discuss how we can work with you to make the right decisions for your new business.