When you start a business, a key to your success is to know your tax obligations. You may not only need to know about income tax rules, but also about payroll tax rules. Here are five IRS tax tips that can help you get your business off to a good start.
1. Business Structure. An early choice you need to make is to decide on the type of structure for your business. The most common types are sole proprietor, partnership and corporation.
The type of business you choose will determine which tax forms you will
file.
2. Business Taxes. There are four general types of business taxes.
They are income tax, self-employment tax, employment tax and excise
tax. In most cases, the types of tax your business pays depends on the
type of business structure you set up. You may need to make estimated tax payments. If you do, use IRS Direct Pay to pay them. It’s the fast, easy and secure way to pay from your checking or savings account.
3. Employer Identification Number. You may need to get an EIN
for federal tax purposes. Search “do you need an EIN” on IRS.gov to
find out if you need this number. If you do need one, you can apply for it online.
4. Accounting Method. An accounting method
is a set of rules that you use to determine when to report income and
expenses. You must use a consistent method. The two that are most common
are the cash and accrual methods. Under the cash method, you normally
report income and deduct expenses in the year that you receive or pay
them. Under the accrual method, you generally report income and deduct
expenses in the year that you earn or incur them. This is true even if
you get the income or pay the expense in a later year.
5. Employee Health Care. The Small Business Health Care Tax Credit
helps small businesses and tax-exempt organizations pay for health care
coverage they offer their employees. A small employer is eligible for
the credit if it has fewer than 25 employees who work full-time, or a
combination of full-time and part-time. The maximum credit is 50 percent
of premiums paid for small business employers and 35 percent of
premiums paid for small tax-exempt employers, such as charities.
The employer shared responsibility provisions
of the Affordable Care Act affect employers employing at least a
certain number of employees (generally 50 full-time employees or a
combination of full-time and part-time employees). These employers’ are
called applicable large employers. ALEs must either offer minimum
essential coverage that is “affordable” and that provides “minimum
value” to their full-time employees (and their dependents), or
potentially make an employer shared responsibility payment to the IRS.
The vast majority of employers will fall below the ALE threshold number
of employees and, therefore, will not be subject to the employer shared
responsibility provisions.
Employers also have information reporting responsibilities
regarding minimum essential coverage they offer or provide to their
fulltime employees. Employers must send reports to employees and to the
IRS on new forms the IRS created for this purpose.
Additional IRS Resources:
- IRS Tax Calendar for Businesses and Self-Employed
- Publication 505, Tax Withholding and Estimated Tax
- Publication 334, Tax Guide for Small Business
- Publication 225, Farmers Tax guide
- Publication 535, Business Expenses
- Publication 587, Business Use of Your Home
- Publication 510, Excise Taxes
- Publication 538, Accounting Periods and Methods
- Small Business Health Care Tax Credit – English | Spanish | ASL
- IRS Online Tax Calendar – English | Spanish | ASL
- Simplified Home Office Deduction – English | Spanish | ASL
- Small Business Health Care Tax Credit – English | Spanish
- IRS Online Tax Calendar – English | Spanish
- Simplified Home Office Deduction – English | Spanish
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