IRS Income Tax Tips For Startups And New Businesses

New business owners have tax-related things to do before launching their companies. IRS.gov has resources to help.
 

Here are some items to consider before scheduling a ribbon-cutting event.

Choose a business structure:

When starting a business, an owner must decide what type of entity it will be. This type determines which tax forms a business needs to file. Owners can learn about business structures at IRS.gov. The most common forms of businesses are:

• Sole Proprietorships
• Partnerships
• Corporations
• S Corporations
• Limited Liability Company

Determine business tax responsibilities:

The type of business someone operates determines what taxes they need to pay and how to pay them. There are the five general types of business taxes.

• Income tax – All businesses except partnerships must file an annual income tax return. They must pay income tax as they earn or receive income during the year.
• Estimated taxes – If the amount of income tax withheld from a taxpayer’s salary or pension is not enough, or if the taxpayer receives income such as interest, dividends, alimony, self-employment income, capital gains, prizes and awards, they may have to make estimated tax payments.
• Self-employment tax – This is a Social Security and Medicare tax. It applies primarily to individuals who work for themselves.
• Employment taxes – These are taxes an employer pays or sends to the IRS for its employees. These include unemployment tax, income tax withholding, Social Security, and Medicare taxes.
• Excise tax – These taxes apply to businesses that:
• Manufacture or sell certain products
• Operate certain kinds of businesses
• Use various kinds of equipment, facilities, or products
• Receive payment for services

Choose a tax year accounting period:

Businesses typically figure their taxable income based on a tax year of 12 consecutive months. A tax year is an annual accounting period for keeping records and reporting income and expenses. The options are:

• Calendar year: Jan. 1 to Dec. 31.
• Fiscal year:12 consecutive months ending on the last day of any month except December.  In general, pass through entities are required to select a calendar year tax year.

Set up recordkeeping processes:

Being organized helps businesses owners be prepared for other tasks. Good recordkeeping helps a business monitor progress. It also helps prepare financial statements and tax returns. See IRS.gov for recordkeeping tips.

Additional Resources:

• Recommended reading for small businesses: Small Business Publications
• Checklist for starting a business
• Industries/professions webpage
• For information on state requirements for starting and operating a business, refer to a state's website.

For help with your legal needs contact a business, tax, and health care law attorney at the offices of AttorneyBritt.

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