When you start a business, you need to know about income taxes, payroll taxes, understanding your tax obligations, and much more. Here are five tips to help you get your business off to a good start:
1. Business Structure. One of the first decisions you need to make is which type of business structure to choose. The most common types are sole proprietor, partnership, and corporation. This is an important step because the type of business you choose will determine which tax forms you file. See, Choosing the Right Business Entity, above.
2. Business Taxes. There are four general types of business taxes. They are income tax, self-employment tax, employment tax, and excise tax. In most cases, the types of tax your business pays depends on the type of business structure you set up. You may need to make estimated tax payments. If you do, you can use IRS Direct Pay to make them. It’s the fast, easy and secure way to pay from your checking or savings account.
3. Employer Identification Number (EIN). You may need to get an EIN for federal tax purposes. The easiest way to find out if you need an EIN is to use the search term “do you need an EIN” on the IRS.gov website. If you do need one, contact the office or apply for one online at IRS.gov.
4. Accounting Method. An accounting method is a set of rules that you use to determine when to report income and expenses. The two that are most common are the cash and accrual methods, and you must use a consistent method. Under the cash method, you normally report income and deduct expenses in the year that you receive or pay them. Under the accrual method, you generally report income and deduct expenses in the year that you earn or incur them. This is true even if you get the income or pay the expense in a later year.
5. Employee Health Care. The Small Business Health Care Tax Credit helps small businesses and tax-exempt organizations pay for health care coverage they offer their employees. You’re eligible for the credit if you have fewer than 25 employees who work full-time, or a combination of full-time and part-time. The maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers, such as charities.