You’ve finally made the decision to start a small business. Before you start popping bottles, you’ll first want to take care of some tax matters. Yes, even before you start making money. By setting up a proper foundation, you’re sure to avoid having the IRS show up at your door or in your mailbox with bad news. Having a checklist handy goes a long way in making your job easier and ensuring everything is handled.
1. Select a Business Structure.
One of the first things you’ll want to do is decide how you’ll structure your business. Options include:
- Sole Proprietorships, in which you’re the sole owner of your business
- Partnerships, where there are at least two people who contribute property, money, skills and labor and share in the profits and losses
- Corporations, in which company shareholders exchange money and/or property for capital stock.
- S Corporations, whereby elected shareholders handle business income, losses, credits and deductions
- Limited Liability Companies, in which state statutes dictate the structure of the business
2. Apply for an Employer Identification Number (EIN).
Your EIN is also known as your Federal Tax Identification Number and is what you use on your tax form to identify your specific business. Thankfully, you can get your EIN for free and do so online as well. The IRS website has plenty of information regarding whether you need an EIN, when you can expect to receive yours, what you can do if you need to replace your number and more.
3. Select Your Tax Year.
Rather than always starting the first day of January, your tax year is the yearly accounting period for reporting all business expenses and income and keeping up with your business records. You can use a regular calendar year for your tax year, or you can go with a fiscal year. A fiscal year is 12 consecutive months that end on the final day of any month except for December. For instance, a 52-53-week tax year is one that shifts anywhere from 52 to 53 weeks, but doesn’t always have to terminate on the final day of the month.
4. Learn More About Your Business Tax Obligations.
Some of the taxes you can expect to pay as a business owner include excise tax, income tax, estimated tax, self-employment tax and employment tax. The specific type of business you have determines the taxes you pay.
5. Take Care of Your Employees.
If you plan on hiring employees for your small business, you’ll want to start preparing for them long before you hire your first one. Specifically, you’ll need to check out the IRS’s employer tax guide, supplemental tax guide for employers and the agricultural employer’s tax guide. When you start hiring employees, they’ll need to complete withholding allowance certificates, W-4s and employment eligibility verification forms.
6. Find an Accountant.
Even though software is available that lets you take care of your own taxes, it’s still a good idea to meet with an accountant a few times throughout the year. The reason for this is accountants are able to help you know for certain whether or not you qualify for certain tax deductions and credits, which is preferable to learning otherwise when you file your tax returns. The last thing you want is to have to scramble for cash to cover an unexpected tax bill. Something else to think about with allowing an accountant to assist you with your taxes is you can start saving money in the event you made a mistake earlier in the year and owe more on your taxes than you realize. This keeps you from having to take on debt in the form of a business loan or settling for a loan with unfair terms because you don’t have time to find a better one before your tax payment is due.
Always keep taxes in the forefront of your mind while operating your small business. Tax season only comes once a year, but once is plenty.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.