If you’re anything like me, then you too subscribe to IRS updates. This recent IRS post has some great basic information for everybody looking to start their own business.
If you plant to start a new business, or if you’ve just opened your doors, it’s important for you to know your federal tax responsibilities. Here are 5 basic tips from the IRS that can help you get started:
1. Type of business – early on, you will need to decide on the type of business you are going to establish. The most common types are sole proprietorship, partnership, S corporation and Limited Liability Company. Each type reports its business active on a different federal tax form.
2. Type of taxes – the type of business you run usually determines the type of taxes you pay. The four general types of business taxes are income tax, self-employment tax, employment tax, and excise tax.
3. Employer Identification Number – oftentimes, a business needs to use a federal EIN for tax purposes. Check irs.gov to find out if you are required to obtain and use an EIN. If you do, you can apply here.
4. Accounting method – each taxpayer must also use a consistent accounting method, which is a set of rules that determine when to report income and expenses. The most common are cash and accrual methods of accounting.
5. Employees – if you have employees, they need to fill out Form W-4. This ensures that you withhold the correct federal income tax from their pay. Each state has additional requirements for starting and operating a business. For information regarding state level requirements for starting a business, please refer to your state’s website.