Seven Taxpayer Tips for Starting a New Business
Posted By JK Harris on July 16, 2009
IRS Summertime Tax Tip 2009-02
- First, figure out what type of business entity you are starting. The most common are the sole proprietorship, corporation, or S corp. The type of business you choose will determine the type of tax form you will need to file each year.
- The type of business you open determines what taxes you must pay and how you must pay them. There are four types of taxes you could be subject to: income tax, self-employment tax, employment tax and excise tax.
- As a new business, you will need to apply for an Employer Identification Number (EIN). An EIN is used to identify a business entity. You can apply for your EIN online. Visit www.irs.gov to learn more about the EIN and how to apply for yours.
- Keeping good records will help ensure the successful operation of your new business. Choose any record keeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law doesn’t require any special kind of records. The business you are in however, may affect the type of records you need to keep for federal tax purposes.
- The calendar year and the fiscal year are the most common tax years used. Every business taxpayer must figure taxable income on an annual accounting period, or tax year.
- Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. With the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year they are paid. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.
- The Business section of www.irs.gov has excellent resources to assist entrepreneurs with starting and operating a new business. Visit the IRS website for more information.
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