9 Critical Things the IRS Wants New Business Owners to Know

9 Critical Things the IRS Wants New Business Owners to Know

If you are starting a new business or even if you have been in business a while, recordkeeping and paying taxes are major areas of concern. The IRS has a quick reference of nine items that can get you on track to learn the ropes or at least to help you ask a tax professional the right questions. Here are the 9 advisory references from the IRS.

Is it a Business or a Hobby?

The IRS says: “A key feature of a business is that people do it to make a profit. People engage in a hobby for sport or recreation, not to make a profit.” Something some people miss is that even if engaged in a hobby, if an income is earned, you should report it and pay taxes on it. Business income and hobby income are handled differently.

Selecting a Business Structure

The IRS says: “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 documents and links for this discussion lead to more information on:

  • Sole proprietorship
  • Partnership
  • Corporation
  • S-Corporation
  • Limited Liability Company

Though it is possible and is often done, changing business structures later can be tricky and result in tax consequences.

Employer Identification Number (EIN)

The EIN, Employer Identification Number, is how the business will be identified by the IRS. It can be your social security number if you are a sole proprietor, but this could depend on what you are involved in for business. Get the questions here that determine if you need an EIN, and then if you do you can easily request one online.

Business Taxes

The IRS gives you an overview of the five general types of taxes that businesses pay, and they link you to more detail on them:

  • Income tax
  • Self-employment tax
  • Estimated taxes
  • Employment taxes
  • Excise tax

Though the forms differ, all businesses except partnerships must pay income taxes.

Recordkeeping

The instructions and information in this area help you with why records are important, proper recordkeeping procedures, how to record business transactions, how long to keep them, and the “burden of proof” required by the IRS. The IRS says: “You should keep adequate records to prove your expenses or have sufficient evidence that will support your own statement.”

When Do I Start My Tax Year?

The IRS requires that you file your taxes based on a business “tax year.” You have two options:

  • Calendar year - 12 consecutive months beginning January 1 and ending December 31.
  • Fiscal year - 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.

The instructions and guidance here include considerations in choosing a tax year, how you could have the IRS require a tax year under their regulations and changing a tax year.

Checklist for Starting a Business

These are specific line item instructions for getting set up in a new business, selecting a structure, filing the proper forms, and other details in five areas of consideration.

Types of Retirement Plans

Retirement plans are not only a benefit for the future but also tax-saving mechanisms in the present. The guidance in this section covers 15 types of retirement accounts, specifics of each, and which could be applicable for a business.

Small Business Publications

This is a chart with the various publications for business owners, and each is summarized and linked to a PDF file for download or a web page.

There is a lot of information in these nine source links, and it is organized in a way that will help the small business owner to quickly get a handle on IRS requirements and help.

SOURCES

As linked.

SCHEDULE MY FREE CALL

With Tax Hive’s years of experience in tax and business services, we use our expertise to make your life easier so you can focus on building your business. Ever changing rules require a team who knows you, your business and the tax implications. Our tax professionals meet your needs while helping you manage tax risk, control costs and reap maximum benefit. If you’re ready to get started, CLICK HERE to schedule a FREE strategy session with one of our specialists today.

Schedule your FREE 15 minute call now!