Six Tax Tips for new Businesses

Are you opening a new business this fall? The IRS has many resources available for individuals that are opening a new business. Here are six tax tips the IRS wants new business owners to know.

1. Business Entity - Decide what type of business entity you are going to establish. The type of business entity will determine which tax form you have to file. The most common types of business are the sole proprietorship, partnership, limited liability company, and corporation.

2. Tax Period - Every business must figure taxable income on an annual accounting period called a tax year. The calendar year, January through December, is the most common.

3. Record Keeping - Good records will help you ensure successful operation of your new business. You may choose any recordkeeping method suited to your business. There are so many options out there and this choice can be confusing. My advice - start out with a simple system that allows you room to grow but doesn't require hours of your time. Products like QuickBooks or Wave are great options!

4. EIN # - An Employee Identification Number or EIN is used to identify a business entity. Generally, businesses need an EIN#. Visit IRS.GOV for more information and to apply for one online.

5. Tax Liability - The type of business you operate determines what taxes you must pay and how frequency of when you pay. The four general business taxes are Income Tax, Self-Employment Tax, Employment Tax, and Excise Tax. Be prepared to learn these tax rates and what you will be liable for.

6. Accounting Method - Lastly, each taxpayer must use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and accrual method. Under the Cash Method, you report income in the tax year you receive the CASH and deduct expenses in the year you pay out the CASH. Under the Accrual Method, you report income in the tax year you earn it and deduct expenses in the year you incur them.

A great resource is IRS Publication 583, Starting a Business and Keeping Records. You can find it HERE.