Four Things to Know about Taxes and Starting a Business

New business owners have tax-related things to do before launching their companies. IRS.gov has resources to help. Here are some items to consider before scheduling a ribbon-cutting event.

Choose a business structure

When starting a business, an owner must decide what type of entity it will be. This type determines which tax forms a business needs to file. Owners can learn about business structures at IRS.gov. The most common forms of businesses are:

Determine business tax responsibilities 

The type of business someone operates determines what taxes they need to pay and how to pay them. There are the five general types of business taxes.

  • Income tax – All businesses except partnerships must file an annual income tax return. They must pay income tax as they earn or receive income during the year.
  • Estimated taxes – If the amount of income tax withheld from a taxpayer’s salary or pension is not enough, or if the taxpayer receives income such as interest, dividends, alimony, self-employment income, capital gains, prizes and awards, they may have to make estimated tax payments.
  • Self-employment tax – This is a Social Security and Medicare tax. It applies primarily to individuals who work for themselves.
  • Employment taxes – These are taxes an employer pays or sends to the IRS for its employees. These include unemployment tax, income tax withholding, Social Security, and Medicare taxes.
  • Excise tax – These taxes apply to businesses that:
    • Manufacture or sell certain products
    • Operate certain kinds of businesses
    • Use various kinds of equipment, facilities, or products
    • Receive payment for services

Choose a tax year accounting period

Businesses typically figure their taxable income based on a tax year of 12 consecutive months. A tax year is an annual accounting period for keeping records and reporting income and expenses. The options are:

  • Calendar year: Jan. 1 to Dec. 31.
  • Fiscal year:12 consecutive months ending on the last day of any month except December.

Set up recordkeeping processes

Being organized helps businesses owners be prepared for other tasks. Good recordkeeping helps a business monitor progress. It also helps prepare financial statements and tax returns. See IRS.gov for recordkeeping tips.

Additional Resources:

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IRS Has Options to Help Small Business Owners

Small business owners often have a running list of things to do. These include deadlines, sales calls, employee issues, banking, advertising – and taxes. The IRS can help with the last one.

Here are seven resources to help small businesses owners with common topics:

  • Looking at the Big Picture: The Small Business and Self-Employed Tax Center brings information on IRS.gov to one common place.
  • Organizing Tasks: The IRS Tax Calendar for Businesses and Self-Employed helps  owners stay organized. It includes tax due dates and actions for each month. Users can subscribe to calendar reminders or import the calendar to their desktop or calendar on their mobile device.
  • Searching for Topics: The A-to-Z Index for Business helps people easily find small business topics on IRS.gov.
  • Getting Information by Email: Small business owners can sign up for e-News for Small Businesses. The free, electronic service gives subscribers information on deadlines, emerging issues, tips, news and more.
  • Watching Videos: The IRS Video Portal  offers learning events and informational videos on many business topics.
  • Finding Forms: The Small Business Forms and Publications page helps business owners find the documents they need for the type of business they own. It lists tax forms, instructions, desk guides and more.
  • Meeting in Person or Online: Small business workshops, seminars and meetings are held throughout the country. They’re sponsored by IRS partners that specialize in federal tax topics. Topics vary from overviews to more specific topics such as retirement plans and recordkeeping.

Five Things to Know about Estimated Taxes and Withholding

If you are an entrepreneur who owns the business this is for you. The IRS is talking about estimated taxes and withholding and as all self-employment income earners know, this applies to you. Read on!

People pay taxes on income through withholding on their paycheck or through estimated tax payments. Taxpayers who pay enough tax throughout the year can avoid a large tax bill and penalties when they file their return.

Taxpayers should make estimated tax payments if:

  • The tax withheld from their income does not cover their tax for the year.
  • They have income without withholdings. Some examples are interest, dividends, alimony, self-employment income, capital gains, prizes or awards.

Here are five actions taxpayers can take to avoid a large bill and estimated tax penalties when they file their return. They can:

  • Use Form 1040-ES. Individuals, sole proprietors, partners and S corporation shareholders can use  this form to figure estimated tax. This form helps someone calculate their expected income, taxes, deductions and credits for the year. They can then figure their estimated tax payments.
  • Use the Withholding Calculator on IRS.gov. This tool helps users figure how much money their employer should withhold from their pay so they don’t have too much or too little tax withheld. The results from the calculator can also help them fill out their Form W-4. Taxpayers whose income isn’t paid evenly throughout the year, can check Publication 505 instead of the calculator.
  • Have more tax withheld. Taxpayers with a regular paycheck can have more tax withheld from it. To do this, they must fill out a new Form W-4and give it to their employer. This is a good option for taxpayers who participate in a sharing economy activity as a side job or part-time business.
  • Use estimated payments to pay other taxes. Self-employed individuals can make estimated tax payments to pay both income tax and self-employment tax. Self-employment tax includes Social Security and Medicare.
  • Use Form W-4P. Generally, pension and annuity plans withhold tax from retirees’ payments. Recipients of these payments can adjust their withholding using Form W-4P and give it to their payer.

Habits For Every Day!

By Debby Winters

If you are like me you are always reading posts like “Highly Effective Habits” or “How To Be More Productive” or something that you think will have the answers to making you more productive, effective, or just in a better feel-good position.  I’m not going to say this article is THE answer but I will say that I like the way Timothy Sykes thinks in his post titled “8 Daily Habits That Will Make 2015 Explosive” and here’s why.

  1. Get up early- This is something that I struggle with. I’m not one to sleep late but I hate to get up earlier than I “need” to. I will work on this because I can see the value in having quiet time and alone time. I’ve always liked working when everyone else is not there (and still do) so am sure this is valuable.
  2. Read-I’ve never been a big reader who reads for pleasure because I have to read so much for work. But I love to learn and I love to listen to audio books while I run so this is high on my 2015 list too. And as the article points out, even 20-30 minutes a day is valuable.
  3. Exercise- This one I am definitely on board with. I am a long distance runner so I get plenty of exercise but in 2015 I’m trying to do more cross-exercising.
  4. Practice gratitude-I knew someone once who always made a point of saying “thank you.” That made me realize how good it makes the person feel who you say it to. I’m all about this one.
  5. Schedule your day before it starts- Would you start out on a road trip without a map or knowing how to get where you want to go? Enough said.
  6. Focus on high-priority tasks first- This may be where I need the most work. I sometimes get into the minutia of the day and the day gets away from me before I get to the “important” stuff. I’m moving this one to the top of my list.
  7. Always go the extra mile- The true sign of a dedicated soul. I’m all about this one too.
  8. Improve in one area each day- We can all improve and if you strive to do a little every day, just think where we can be at the end of the year!

I think the reason this article “spoke” to me is because I totally agree. Sometimes you read articles that tell you how to improve, how to be more productive, or how to be a better person but the suggestions in these articles are not something you can practice every day. I feel this list of 8 is something I not only can do every day but is something I will do every day! How about you?