Starting a new business can be a daunting task, but understanding your tax responsibilities is a crucial part of the process. To help new entrepreneurs navigate this terrain, the IRS offers valuable resources and guidelines. Here, we break down the key tax-related steps you need to take when launching your business.
1. Choose a Business Structure
Sole Proprietorship: An individual owns an unincorporated business, with no distinction between personal and business finances. Partnership: Multiple individuals share ownership of an unincorporated business.
Corporation (C Corporation): This is a separate entity owned by shareholders.
S Corporation: Corporations that pass income, losses, deductions, and credits through to shareholders.
Limited Liability Company (LLC): A state-regulated business structure; single-member LLCs may be treated as sole proprietors for tax purposes.
2. Choose a Tax Year
You must select either a calendar year (January 1 to December 31) or a fiscal year (12 consecutive months ending on any month except December) for accounting and reporting purposes.
Note: Changing your tax year requires IRS approval or meeting specific exceptions listed in Form 1128 instructions.
3. Apply for an Employer Identification Number (EIN):
An EIN, also known as a Federal Tax Identification Number, is used to identify your business.
Most businesses need an EIN. Use the IRS EIN checklist to determine if your business requires one.
Maintain accurate EIN-related information, such as business address and responsible party, and report any changes to the IRS within 60 days. Complete Employee Forms: **3. Ensure your employees complete the following forms**
Form I-9 (Employment Eligibility Verification) from U.S. Citizenship and Immigration Services.
Form W-4 (Employee's Withholding Certificate) to determine federal income tax withholding.
4. Pay Business Taxes
The type of business structure you choose determines which taxes you must pay and how to pay them.
Visit your state's website to understand state-specific tax requirements.
Starting a business is an exciting journey, but it comes with financial responsibilities. By following these essential tax-related steps, you'll be better prepared to navigate the complexities of business taxation and set your venture on the path to success. For more detailed information and guidance, visit the IRS website and consult with a tax professional. Good luck on your entrepreneurial journey!