A brand new year is just around the corner. Knowledge about tax law and overall tax obligations is important for anyone contemplating opening a business in 2017. Below are a few tips regarding major tax responsibilities. Keep them in mind as you prepare to become an entrepreneur in 2017.
There are various IRS forms. Each group pertaining to a specific type of business. How you define your business will determine which IRS forms you will be required to complete. Among the various types of businesses are: Sole Proprietorships, Partnerships, Corporations, S- corporations or Limited Liability Companies.
There are four basic types of business taxes. These are:
- Income tax
- Self-employment tax
- Employment tax
- Excise tax
Once you have defined how you intend to structure your business, your Accountant can help you understand the purpose of each of these taxes and which of them will apply to your company. In some cases, an estimated tax payment may be in order. Again, your Accountant will advise you when this structure applies to you.
In certain situations the Government may require you to obtain an Employer Identification Number (EIN) for federal tax purposes. Your Accountant will advise you as to whether or not you will need one. In addition, your Accountant will explain and guide you through the process for obtaining your EIN.
Lastly, know what Accounting Methods you intend to employ. An Accounting Method is defined as a group of regulations that determine when income and expenses must be recorded. The two methods used most frequently are Cash and Accrual. Whichever Accounting Method is chosen, the method must remain consistent. If you choose to utilize the Cash Method, you would usually report your income during the year you receive it and deduct expenses during the year they are paid. The Accrual Method, on the other hand, requires that you report income in the year it is earned and deduct expenses during the year they are incurred. This method must be maintained even if you receive income or pay debts at some point in the future.
Hiring a knowledgeable Accountant is the most important step you can take before you open your new business. From the planning process and onward, your Accountant can provide invaluable advice to help you remain compliant and profitable. It is well worth your time to keep this area of your new business a decision making priority.