Starting a New Business
Today we will take a look at some tax tips when starting a business. I selected this topic after having four meetings last week with clients looking to start a new business.
When starting a new business, it is important to know what your responsibilities are for federal and state taxes.
Early on, you will need to decide the type of business you are going to establish. The most common types are:
Sole Proprietorship
Partnership
Corporation
S Corporation
Limited Liability Company (also known as an LLC)
This is the time in the process to meet with a good business attorney.
The type of business you run usually determines the type of taxes you pay. The four general types of business taxes are:
Income Tax
Self-Employment Tax
Employment Tax
Excise Tax
The type of business also determines what type of tax form is used to report your income each year.
A business often needs to get a federal EIN, or Employer Identification Number for tax purposes.
If you have payroll, you also need to register with the state for both withholding and unemployment tax reporting. If your business has sales that are subject to sales tax, you also need to register with the state for a sales tax permit.
Keeping good records will help you when it’s time to file your business tax forms at the end of the year. They help track income and deductible expenses and support all the items you report on your tax return. Good records will also help you monitor your business’s progress throughout the year.
It is difficult to manage what you aren’t measuring. You may choose any recordkeeping system that clearly shows your income and expenses. Not keeping good records may cause you to pay more in taxes.
Disclaimer: The items included in the Tax Tip Tuesday Video Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation. IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advise contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
