New Business Owner Guide
Monday, May 19, 2014
Posted by: Rhette Baughman
Are You a New Business Owner?
The checklist below provides the basic steps you should follow to start a business. This list should not be construed as all-inclusive. Other steps may be appropriate for your specific type of business.
Information about specific industries can be found at theIndustries/Professions Web page.
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 Web site.
Refer also to the Small Business Administration's Steps to Starting a Business.
Employer Identification Number (EIN)
An Employer Identification Number (EIN) is also known as a Federal Tax Identification Number, and is used to identify a business entity. Generally, businesses need an EIN. You may apply for an EIN in various ways, and now you may apply online. This is a free service offered by the Internal Revenue Service. You must check with your state to make sure you need a state number or charter.
When beginning a business, you must decide what form of business entity to establish. Your form of business determines which income tax return form you have to file. The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation. A Limited Liability Company (LLC) is a relatively new business structure allowed by state statute. Legal and tax considerations enter into selecting a business structure.
Selecting A Tax Year
You must figure your taxable income on the basis of a tax year and file an income tax return. A “tax year” is an annual accounting period for keeping records and reporting income and expenses. An annual accounting period does not include a short tax year. The tax years you can use are:
- Calendar year - A calendar tax year is 12 consecutive months beginning January 1 and ending December 31.
- Fiscal year - A fiscal tax year is 12 consecutive months ending on the last day of any month except December. A 52-53-week tax year is a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month.
Unless you have a required tax year, you adopt a tax year by filing your first income tax return using that tax year.
The form of business you operate determines what taxes you must pay and how you pay them. The following are the four general types of business taxes.
- Income Tax - All businesses except partnerships must file an annual income tax return. Partnerships file an information return. The form you use depends on how your business is organized. Refer to Business Structures to find out which returns you must file based on the business entity established
- Estimated Taxes - The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. An employee usually has income tax withheld from his or her pay. If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year.
- Self-Employment Tax - Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Your payments of SE tax contribute to your coverage under the social security system. Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. Generally, you must pay SE tax and file Schedule SE (Form 1040) if your net earnings from self-employment were $400 or more.
- Employment Taxes - When you have employees, you as the employer have certain employment tax responsibilities that you must pay and forms you must file. Employment taxes include the following:
Social security and Medicare taxes, Federal income tax withholding, and Federal unemployment (FUTA) tax.
- Excise Taxes – Are taxes paid when purchases are made on a specific good, such as gasoline. Excise taxes are often included in the price of the product. There are also excise taxes on activities, such as on wagering or on highway usage by trucks. Excise Tax has several general excise tax programs. One of the major components of the excise program is motor fuel.
- Recordkeeping - Good records will help you monitor the progress of your business, prepare your financial statements, identify source of receipts, keep track of deductible expenses, prepare your tax returns, and support items reported on tax returns.
If you plan to hire employees or would like to review all the information available on irs.gov for your small business, please visit our Small Business Tax Center/A-Z Index for Business or attend a workshop in person or online.
Small Business Tax Workshops
Small Business Taxes: The Virtual Workshop is available on-line to help new small business owners understand and meet their federal tax obligations.
You may also attend Small business workshops in-person. These workshops are held at various locations throughout the country. Workshops are sponsored and presented by IRS partners specializing in federal tax. Just click on the link for your state.
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