Starting a New Business? Here are 4 Must Haves to Be Straight with the IRS
Congratulations on starting a new business. Your mind may feel like a hamster on a wheel thinking of all the things you need to get done before you open your doors. One of the items new business owners need to think about is taxes. Selecting the correct business structure, understanding tax requirements, and getting set up with an easy-to-use payroll service will help make your relationship with the IRS a little bit easier when it’s time to file taxes.
There are tax obligations when starting any business and it can be a little overwhelming. This checklist may help guide you through what you need to do to set up your new business correctly and avoid any surprises with the IRS come tax time.
Select Your Business Structure
The first question you need to ask when starting a new business is “Who am I going into business with?” This will help determine the business structure. If you are in business by yourself you will most likely open a sole proprietorship. If the business has several owners, you may open a partnership. If you want to have shareholders, you may choose to open a corporation. Other types of business structures include S corporations and a limited liability company.
According to the IRS, sole proprietorships, partnerships, and corporations are the most common forms of business structures. Choosing your business structure determines which tax return forms you need to file with the federal and state governments.
Register for an Employer Identification Number
An EIN is a unique number that identifies your business with the federal government for tax purposes. After your business structure is determined, applying for an EIN is the next step in starting a new business.
This is a free service offered by the IRS and you can apply for an EIN online. It’s important to remember this is a federal identification number for tax purposes. Check your state regulations to determine if you need to file for a state identification number as well.
Find Out What Business Taxes You Need to Pay
Not all businesses are treated equally when it comes to taxes. The type and amount you are required to pay depends on the business structure. Different types of taxes are paid different ways and at different times during the year. In order to avoid a big surprise from the IRS come tax time, it’s important to understand your tax obligations.
Most business structures file an annual federal income tax return (partnerships are the exception to this rule). The forms required by each business type depend on how the business is established. Federal income tax is a pay-as-you-go system, meaning business owners pay tax to the federal government as they receive income during the year.
This is true for both employers and employees. As an employer you are required to deduct income tax from each employee’s pay check throughout the year as well.
Choose a Payroll Provider Wisely
According to Bloomberg Businessweek, business owners paid a total of $4.5 billion to the IRS in payroll tax penalties in 2013. A payroll provider can help business owners understand their tax obligations, make sure taxes are filed correctly and paid on time, and find potential tax credits to help avoid fees.
A comprehensive payroll provider with all-inclusive services can offer a variety of services such as human resources, accounting, and finance, as well as payroll and tax services.
Choosing the right partners is an essential part of any business. Having a good payroll provider can mean you don’t have to worry about choosing the right business structure, calculating employee wages, paying sales taxes, and filing paperwork on time, so you can focus on what’s really important — running your business.