New Business Tax Considerations
If you intend to start a new business, there are tax implications you should be aware of. The type of tax you need to pay depends on the type of business you have. There are 4 basic types of businesses, namely sole proprietorship, partnership, corporation and S corporation. These 4 business types are levied differing types of business taxes in the form of income tax, self-employment tax, employment tax and excise tax.
To start a business you need an Employer Identification Number (EIN) which identifies your business to the government. You can apply for an EIN and get further information about it online from the IRS website, http:/irs.gov.
Every business needs to submit tax returns and pay taxes according to an annual period called a tax year. Generally, your business' tax year will either be the calendar year or the fiscal year of your business. So the next practical thing you should do is invest in some good tax preparation software. But such software is useless (or will not give you accurate results) if you do not have a good accounting system in place for your business. So keeping accurate and current accounting records is imperative for any business owner (more on that below). Then when you use your tax preparation software, you're more likely to save time and effort rather than have to waste time checking and rectifying errors. No matter how sophisticated your software, there can still be errors. Do not allow having tax preparation software lull you into complacency. So do it right and well the first time all the time.
When it comes to keeping good accounting records, there are 2 recording and reporting systems you can employ. Each system has its own rules to be followed. The first is the cash method where you report your income in the tax year that you receive it and likewise deduct your expenditure in the tax year that you actually pay the expenses. The second is the accrual method in which you report your income in the tax year you earn it and deduct your expenses in the tax year you incur the expenses. Either way is acceptable but you must be consistent each year.
Finally, always refer to the guidelines in the business section of the IRS website, http://irs.gov for all the details business owners must be aware of when starting your own business.
Darrin T. Mish is a veteran, nationally recognized tax attorney who has focused on providing IRS help to taxpayers for over a decade. He regularly travels the country training other attorneys, CPAs and enrolled agents on how to handle their toughest cases with the IRS. He is highly ranked among the top attorneys in the country, with an AV rating from Martindale-Hubbell and a perfect 10 on Avvo.com. Martindale-Hubbell has also honored him with a listing in their Bar Register of Preeminent Lawyers. He is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. With clients on every continent but Antarctica, he has what it takes to solve your IRS problems no matter where you live in the world. If you would like more information about his practice and how he can help you, please call his office at (813) 229-7100 or toll free at 1-888-GET-MISH.
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