If you are planning to start a business, it’s important to understand tax responsibilities from the onset to ensure compliance, efficiency, and minimization when it comes to taxes.
Here are 5 guiding tips:
1. Choose the business structure.
The default business structure is a sole proprietorship (for business with one owner) and general partnership (for business with multiple owners). C corporation and Limited Liability Company are the other most common business structures, and each require certain registration. Each business structure reports business profits/losses differently and on a different tax form.
2. Get an Employer Identification Number
Generally, a business needs to use an Employer Identification Number (EIN) for reporting and paying taxes. Apply for an EIN online through the IRS.
3. Be aware of the different tax types
There are four general types of business taxes: income tax, self-employment tax, employment tax, and excise tax. The business structure and business operations determine the type of taxes your business will pay.
4. Choose the accounting method
The most common accounting methods for taxes is cash or accrual, and each method records the timing of income and expenses differently. A business needs to consistently use the same accounting method.
5. Organize record keeping
All business transactions need to be included and properly accounted for to ensure business revenue and expenses are reported correctly on taxes. All documentary evidence that supports an item of business income or expense be retained for at least three years.
Based on your unique situation, we can give specific guidance to best set your business up for ongoing compliance and tax minimization, with efficiency in mind. Reach out today to discuss your business's unique needs!