Whether an individual plans to start a business or has just started one, it's important to know the federal tax responsibilities he or she has. There are some basic tips the U.S. Internal Revenue Service (IRS) wants new business owners to know. For instance, it's important to know the type of business the company does early on. This may sound simple, but not many people decide if the business is an S corporation, sole proprietorship, limited liability company or partnership. Each type of business reports its activities differently on a federal tax form.
Business formation often requires an Employer Identification Number, or EIN, for tax purposes. Depending on the type of business it is, an owner may not need an EIN. People can check and apply for an EIN online at the IRS website. Many business owners already know that they are required to pay taxes. However, the type of business a person runs determines what type of taxes are paid. Generally, there are four types of business taxes: income tax, employment tax, self-employment tax and excise tax.
Another tip involves the accounting method. Each taxpayer is required to use a consistent set of rules that determines when it's time to report expenses and income. The most common methods business owners use are accrual method and cash method.
Recordkeeping is important to keeping a business successful. Good records typically help when it's time to submit tax return forms. Also, good records may help an individual monitor the business progress and prepare important financial statements. Often, individuals planning and forming new businesses in the state seek legal counsel. A lawyer who specializes in business and commercial law may help business owners understand tax laws and other business laws.
Source: Exponent Telegram, "IRS: Tax tips if you're starting a business", July 03, 2013