STARTING,BUSINESS,amp,#63,WHAT business, insurance STARTING A BUSINESS? WHAT NEW (AND EXISTING

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Starting a business can be overwhelming enough trying to get up and running but when you think about all the tax requirements, your cup may runneth over. Here is what you must know in order to start your own business on the right foot and avoid paying penalties and interest which can cost more than paying an accountant to do things right the first time.WHAT FORM OF BUSINESS SHOULD YOU SET UP WHEN STARTING YOUR BUSINESS?There are several different options including a sole proprietorship, partnership, corporation, S corporation or limited liability company. In general a sole proprietorship works fine if you are very small, not too profitable and aren’t concerned about legal liability issues. A partnership is like being married to the other partners. If you aren’t that cozy with them, you may want to set up another type of entity. Corporations are best suited for business owners who want personal legal protection and have profit available beyond what they will need for their personal use. See http://www.dgoodmancpa.com/smallbusinessretirementplan.htm for an example of what you can do with that available profit tax deferred until retirement. S Corporations are best when you are operating at a loss and want business owner legal protection. Limited liability companies will protect the business owner from personal legal liability and, if structured properly, can be a partnership, corporation or owner for federal income tax purposes.DO YOU NEED AN EMPLOYER IDENTIFICATION NUMBER (EIN) WHEN YOU START YOUR OWN BUSINESS?You need an employer identification number if you have employees, have a qualified retirement plan, operate as a corporation or a partnership, or need to file employment or excise tax returns. You do not need an employer identification number if you are a sole proprietor and don’t meet any of the requirements above.WHAT METHOD CAN YOU USE TO ACCOUNT FOR YOUR INCOME AND EXPENSES WHEN YOU START YOUR SMALL BUSINESS?The two most common methods are cash and accrual. The cash method in general allows you to report income and expenses in the tax year you receive it. The accrual method in general allows you to report income and expenses in the tax year you earn or incur it even if you haven’t received payment or paid it yet.WHAT KINDS OF FEDERAL TAXES WILL YOU OWE WHEN STARTING A BUSINESS?All businesses must file a return. The form used depends on what form of business you set up when starting your business. The federal income tax is a pay-as-you-go tax. In general you must pay the tax as you earn or receive income during the year to avoid penalties and interest if your tax liability for the year exceeds $1,000 including self employment tax for sole proprietors, partners and S corporation shareholders. Corporations should make estimated quarterly payments if they expect to owe $500 for the year. Estimated tax payments are due quarterly. Penalties and interest can be hefty so you should make sure you comply in order to avoid wasting money on IRS penalties.WHAT TAXES ARE DUE IF YOU HAVE EMPLOYEES IN YOUR SMALL BUSINESS?Your small business must pay social security and Medicare taxes, federal income tax withholding, federal unemployment tax along with your state and local income taxes. The associated tax returns for reporting these taxes are in general filed quarterly. Your business is entrusted to pay these taxes on behalf of your employees and not only do you have penalties and interest that you will pay for not filing them timely but can also be committing a crime due to the fiduciary responsibility. You need to be sure you know what you are doing here as the consequences could be costly.WHAT RECORDS SHOULD YOU KEEP WHEN YOU START YOUR BUSINESS?Except in a few cases, the law does not require any specific kinds of records. The most important thing to ask yourself is can you go back to all of the original receipts from the number on your return. If you were to be asked by an IRS agent to provide all the details of a certain number on your return, and you can not do that, you will be at his whim on whether he will allow that deduction. An efficient accounting system with a solid audit trail which has been reconciled is the safest way to be sure you have done this.These are just some questions you may have regarding starting your new business. If you have more, e-mail me at [email protected] and I will help you muddle through the tax and business issues you may have. After all, those of us that have our own business know it’s the only way to go but getting up and running can be a bit of a challenge.This article was intended to provide general information about starting a business. It does not contain all the rules and exceptions that may apply to your situation. If you have further questions regarding starting a small business, I can be reached at www.dgoodmancpa.com.Coming Soon - Year End Tax Planning and PreparationCONTACT INFORMATION:Dianne Goodman, CPAComprehensive Small Business Solutions, PC505 323-23071 866-531-3035 toll freehttp://www.dgoodmancpa.comYou have permission to reprint what you just read. Use it in your ezine, at your website or in your newsletter. The only requirement is to include the following footer...Starting a Business? What New (and existing) Business Owners Should Know by Dianne Goodman, visit http://www.dgoodmancpa.com for more content like this.