Five Tax Tips When Starting Your Own Business
(IRS Tax Tip 2017-18)
New business owners may find the following five IRS tax tips helpful. These tips are the very first tax issues you need to consider as you organize your company for tax reporting:
1. Business Structure. An early choice to make is to decide on the type of structure for the business. The most common types are sole proprietor, partnership and corporation. The type of business chosen will determine which tax forms to file.
2. Business Taxes. There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. In most cases, the types of tax a business pays depends on the type of business structure set up. Taxpayers may need to make estimated tax payments. If so, use either IRS Direct Pay or estimated tax payment vouchers to make them.
3. Employer Identification Number (EIN). Most businesses are required to need to get an EIN for federal tax purposes. You can either complete form SS-4 and mail the application to the IRS or apply for and EIN online.
4. Accounting Method. An accounting method is a set of rules used to determine when to report income and expenses. Taxpayers must use a consistent method. The two most common are the cash and accrual methods:
a. Under the cash method, taxpayers normally report income and deduct expenses in the year that they receive or pay them.
b. Under the accrual method, taxpayers generally report income and deduct expenses in the year that they earn or incur them. This is true even if they get the income or pay the expense in a later year. (Please note that certain types of business are required to use the accrual method. For example, most businesses with inventory can only use the accrual method of accounting for reporting to the IRS.)