When starting a new business, you may be so overwhelmed to hit the ground running, or so immersed in the day-to-day operations, that you neglect important tax responsibilities as a small business owner. Doing so not only can lead to crippling implications for your business, but also hold it back from saving money and growing your business.
Thanks to IRS.gov, there are resources and answers to help guide you through the tax process when starting your new business. Here are six tips for you to follow, as a new business owner.
1. Choose a business structure. The form of business determines which income tax return you need to file as a business taxpayer. The most common business structures are:
- Sole proprietorship: An unincorporated business owned by an individual. There’s no distinction between the taxpayer and their business.
- Partnership: An unincorporated business with ownership shared between two or more people.
- Corporation: Also known as a C corporation, this is a separate entity owned by shareholders.
- S Corporation: A corporation that elects to pass corporate income, losses, deductions, and credits through to the shareholders.
- Limited Liability Company: A business structure allowed by state statute.
2. Choose a tax year. A tax year is an annual accounting period for keeping records and reporting income and expenses. As a new business owner, you must choose either:
- Calendar year: 12 consecutive months, beginning Jan. 1, and ending Dec. 31.
- Fiscal year: 12 consecutive months, ending on the last day of any month, except December.
3. Apply for an employer identification number. An EIN is also called a federal tax identification number. It’s used to identify a business. Most businesses need one of these numbers. As a business with an EIN, it’s important to keep the business mailing address, location, and responsible party up-to-date. IRS regulations require EIN holders to report changes in the responsible party within 60 days. To do this, complete Form 8822-B, Change of Address or ResponsibleParty, and mail it to the address on the form.
4. Have all employees complete these forms. It’s key that all employees complete the following two forms: Form I-9, Employment Eligibility Verification U.S. Citizenship and Immigration Services, and Form W-4, Employee’s Withholding Allowance Certificate.
5. Pay business taxes. The form of business determines what taxes must be paid and how to pay them.
6. Visit state’s website. As a small business owner, make sure you visit your state’s website for info about state requirements.
Moving forward as a new small business owner
While starting your own small business can be both exciting and time-consuming, it’s an absolute must to get your business’ tax situation squared away from day one. Follow these six tips so that you have the tax foundation and peace of mind you need to move forward and grow your business.