Entrepreneurs know that starting a business can be an exceedingly rewarding experience. But as with any big change, you may have a number of questions as you prepare for launch – taxes not the least of your concerns. Understanding your tax obligations as a business owner – including income taxes, payroll taxes and more – is a major key toward success. Fortunately, we’re here to lend a helping hand. For starters, here are five main tax tips for starting a business.
Business Structure
As an early choice you’ll have to decide on a business structure. Be it a sole proprietor, partnership, or corporation, the structure you choose will determine which tax forms you file each year. Information on business types and the many differences between them can be found on IRS.gov.
Business Taxes
There are four main types of business taxes: income tax, self-employment tax, employment tax, and excise tax. The taxes you’ll pay depend on your business structure, but you may be required to make estimated tax payments. This can be easily and securely handled using IRS Direct Pay, which allows you to pay from your checking or savings account.
Employer Identification Number
Again, depending on your business structure, you may need to get an EIN for federal taxes. If you’re not sure whether or not you need an EIN, simply search “do you need an EIN” on IRS.gov and follow the guidelines listed. If you do need an EIN, application is easy and can be done online.
Accounting Method
You will also need to determine a consistent accounting method, or set of rules by which you’ll report income and expenses. The two most common methods are the cash and accrual methods. With the cash method you report income and deduct expenses in the year in which you receive or pay them. Under the accrual method, however, you generally report income and deduct expenses in the year that you earn or accrue them – even if you receive the income or pay the expense a year later.
Employee Health Care
Employee healthcare can be a big expense, but fortunately there’s help. If you have fewer than 25 full-time employees, or a combination of full-time and part-time, you may qualify for the Small Business Health Care Tax Credit. This credit helps small businesses and tax-exempt organizations pay for health care coverage. The maximum allowable credit is 50 percent of premiums paid for small business employers and 35 percent of premiums for small tax-exempt employers, such as charities. Be sure to check out Affordable Care Act for Employers for more information about your health care responsibilities as an employer.
The IRS has a wealth of tax tips for starting a business on their IRS.gov website at the Small Business and Self-Employed Tax Center. If you’re still feeling overwhelmed, however, we’ve got your back. Be sure to check out our services page and fill out the form for a free consultation. Or give us a call at 844-841-9857!
