Do you understand your tax obligations for starting a business? Below are IRS tax tips to help you get your business off to a good start and position yourself for success:
- Business Structure: You need to decide on the type of structure for your business. The most common types are sole proprietor, partnership, corporation, S corporation and Limited Liability Company (LLC). The type of business you choose will determine which tax forms you will file.
- Business Taxes: There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. The types of tax your business will pay depends on the type of business structure you set up. In some instances you may need to make estimated tax payments.
- Employer Identification Number (EIN): You may need to get an EIN for federal tax purposes. You can apply for it online at IRS.gov.
- 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.
- 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. You’re eligible for the credit if you have 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. For more information on your health care responsibilities as an employer, see the Affordable Care Act for Employers at IRS.gov.
- Employer/Employee Requirements:If you have employees, have them fill out Form I-9 and Form W-4.
- State and City Requirements: In addition to the IRS requirements each State and City may have its own obligations.