New U.S. Entrepreneurs - Tax Tips

Tax Tips for New Entrepreneurs
 

Have you embarked on a new venture as your own boss?  While the launching of a new business is both exhilarating and scary, we are here to help you navigate the various tax requirements for a new business owner.
 

Choose a business structure: The form of business determines which income tax return business taxpayer needs to file.

The most common business structures are:

• Sole proprietorship: An unincorporated business owned by an individual. There’s no distinction between the taxpayer and their business. This business entity does not require a separate tax return, as Schedule C, Profit or Loss from Business, is filed with your Form 1040.

• Partnership: An unincorporated business with ownership shared between two or more people. Generally prepares and files a partnership agreement with the appropriate state agency.

• Corporation: Also known as a C corporation. It’s a separate entity owned by shareholders. Articles of Incorporation are filed with the appropriate state agency.

• S Corporation: A corporation that elects to pass corporate income, losses, deductions, and credits through to the shareholders.
Articles of Incorporation are filed with the appropriate state agency.  Form 2553, Election by a Small Business Corporation, is filed to change from a corporation to an S corporation with the IRS.

• Limited Liability Company:  A business structure allowed by state statute which can be treated as a sole proprietorship if only one member or a partnership if two or more members.  An LLC can also elect to be treated as a either a corporation or S corporation for tax purposes. Form 8832, Entity Classification Election, to elect status as a corporation or Form 2553,Election by a Small Business Corporation, to elect status as an S-corporation is filed with the IRS.
 

Choose a tax year:  A tax year is an annual accounting period for keeping records and reporting income and expenses. A new business owner must choose either:

  • Calendar year: 12 consecutive months beginning January 1 and ending December 31. 
  • Fiscal year: 12 consecutive months ending on the last day of any month except December.

Apply for an employer identification number (EIN):   An EIN is also called a federal tax identification number. It is used to identify a business. Most businesses need an EIN if they will have employees, issue 1099’s, pay excise or sales tax, or sets up a deferred retirement program. It is important for a business with an EIN to keep the business mailing address, location and responsible party up to date. IRS regulations require EIN holders to report changes in the responsible party within 60 days. They do this by completing Form 8822-B, Change of Address or Responsible Party and mailing it to the address on the form.

Have all employees complete these forms:

  • Form I-9, Employment Eligibility Verification U.S. Citizenship and Immigration Services
  • Form W-4 Employee’s Withholding Allowance Certificate
  • Verify any state forms that may also need to be completed

Understanding the tax responsibilities that come with starting a business:  Small business owners have a variety of tax responsibilities. The IRS knows that understanding and meeting tax obligations is vital to the success of all businesses, especially a new one. IRS.gov has the resources and information to help people through the process of starting a new business.

We are here to help you with the formation or operations of a small business. Contact us to be assured that you are staying in compliance with all federal and state filing requirements.