Tax basics for setting up a business
Starting a new business can feel overwhelming, whether you're a first-time entrepreneur or an experienced professional. Fortunately, the IRS provides resources to help navigate the tax responsibilities that come with running a business. Here are essential steps for any entrepreneur launching their venture:
Choose a Business Structure:
Decide on the form of business, which determines the income tax return your business must file.
Common structures include:
Sole Proprietorship: Owned by an individual with no separation between the owner and the business.
Partnership: Unincorporated business shared by two or more members.
Corporation (C Corporation): A separate entity owned by shareholders.
S Corporation: Passes income, losses, deductions, and credits through to shareholders.
Limited Liability Company (LLC): A business structure allowed by state statute, with options for taxation.
Choose a Tax Year:
Select an annual accounting period for recording and reporting income and expenses.
Options are a Calendar Year (January 1 to December 31) or a Fiscal Year (12 consecutive months ending on any month's last day except December).
Apply for an Employer Identification Number (EIN):
Also known as a Federal Tax Identification Number, an EIN identifies your business.
Most businesses need an EIN, but exceptions exist for certain sole proprietors.
Use the EIN checklist on IRS.gov to determine if your business requires one.
Update EIN Information:
Keep your business's mailing address, location, and responsible party information current.
Report changes in the responsible party to the IRS within 60 days.
Employee Forms:
Have all employees complete required forms, including:
I-9, Employment Eligibility Verification (U.S. Citizenship and Immigration Services)
W-4, Employee's Withholding Certificate
Pay Business Taxes:
The business structure determines the applicable taxes and payment methods.
Visit the state's website for information on state tax requirements.
Starting a business involves these crucial steps to ensure compliance with tax regulations and set a solid foundation for your venture. Utilize the IRS resources and guidelines to make informed decisions, and consider seeking professional advice for specific circumstances.
