Four Tax Tips for Starting a Business

By:  |  Category: Blog Monday, June 11th, 2018  |  No Comments
Starting a Business
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If you are planing to start a new business, proper tax planning can play an important role in your success. Here are four tax tips for new business owners you may find helpful:

1. Business Structure. An early choice to make is to decide on the type of structure for the business. The most common types are sole proprietor, partnership and corporation. The type of business chosen will determine which tax forms to file.

“Entity structure is the most important tax consideration business owners need to consider,” said Mark von Rotz, WNDE tax partner. “Depending on the activity of the business and how it will operate will greatly affect the entity type.”

A public accounting firm such as WNDE can play an important role in determining entity structure, he continued, especially due to the recently approved tax reform. He noted, “WNDE has taken a proactive approach in keeping up to date with the new tax reform in advising clients on various plans of action.”

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 a business pays depends on the type of business structure set up. Taxpayers may need to make estimated tax payments. If so, use IRS Direct Pay to make them. It’s the fast, easy and secure way to pay from a checking or savings account.

Mark observed, “The most common mistake I see in new businesses is not complying and/or being aware of all the federal and state filing requirements in starting a business. Noncompliance in the setup of a new business can cause additional problems which can be financially detrimental to a new business.”

3. Employer Identification Number (EIN). Generally, businesses may need to get an EIN for federal tax purposes. Search “EIN” on IRS.gov to find out if the number is necessary. If needed, it’s easy to apply for it online.

4. Accounting Method. An accounting method is a set of rules used to determine when to report income and expenses, “another factor needing careful consideration,” Mark noted.

Taxpayers must use a consistent method. The two most common are the cash and accrual methods:

a. Under the cash method, taxpayers normally report income and deduct expenses in the year that they receive or pay them.
b. Under the accrual method, taxpayers generally report income and deduct expenses in the year that they earn or incur them. This is true even if they get the income or pay the expense in a later year.

Get all the basics of starting a business on IRS.gov at the Small Business and Self-Employed Tax Center. You may also view the IRS video IRS Small Business Self-Employed Tax Center

Additionally, your WNDE tax professional is standing by to help you with your questions about business structure or taxes, EINs, accounting methods or any other tax related questions.

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