6 tips for starting a new business
Understanding the tax responsibilities that come with starting a business venture can save taxpayers money and help set them up for success. Here are a few tips and tricks to help through the process of starting a new business.
6 tax tips for new business owners
1. Choose a business structure
The structure determines which income tax return a 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.
Partnership: An unincorporated business with ownership shared between two or more people
Corporation: Also known as a C corporation. It’s a separate entity owned by shareholders.
S corporation: A corporation that elects to pass corporate income, losses, deductions and credits through to the shareholders
Limited liability company (LLC): A business structure allowed by state statute
2. Choose a tax year
Your 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 Jan. 1 and ending Dec. 31
Fiscal year: 12 consecutive months ending on the last day of any month except December
3. Apply for an employer identification number (EIN)
An EIN is also called a federal tax identification number. It’s used to identify a business. Most businesses need one of these numbers. It’s 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 by completing Form 8822-B, Change of Address or Responsible Party, and mailing it to the applicable address on the form.
4. Have all employees complete:
5. Pay business taxes
The form of business determines what taxes must be paid and how to pay them.
6. Visit your business’s state website
Prospective business owners should visit their state’s website for info about state requirements.