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Starting a business?

Posted by Admin Posted on Aug 24 2017


The possibility of working for yourself or simply creating some “side” income is an idea that many people spend their entire lives dreaming about.  If you are on the brink of bringing a product or service to market, you are probably filled with excitement – and rightfully so! Although it’s certainly not the glossy part of starting a new business, it’s important to keep certain tax/business tips in mind during the early stages.


1)   The structure of your business - The type of structure chosen for your business will determine which tax forms to file. A sole proprietorship or single member LLC is an example of a business with one owner. If your business is going to have more than one owner, the structure would be considered a partnership or corporation. Outlined below are the tax forms filed for each type of structure:

Business Structure

Tax Form

Sole Proprietorship or Single Member LLC

Schedule C (attached to Form 1040 in your personal tax return)

Partnership (General, LLP, LLC)

Form 1065

S Corporation

Form 1120S

C Corporation

Form 1120

 

2)   Paying business related taxes – When running a business, there are four general types of business taxes that you will encounter: Income Tax, Self-Employment Tax, Employment Tax, and Excise Tax. In many cases, the type(s) of tax a business pays depends on the business structure that is set up. Business owners will want to consider making estimated tax payments to avoid large tax bills at the end of the year, and in some cases penalties.
 

3)   Getting an Employer Identification Number (EIN) – Your business may need to set up an EIN for federal tax purposes. If necessary, an EIN can be applied for online here.
 

4)   Choosing an accounting method – As dreadful as it sounds, an accounting method is essential to properly reporting a business’s income and expenses. Taxpayers must use the method they choose consistently. The most common methods used for accounting are cash and accrual:

Cash Method: Report income when the business receives money and deduct expenses when the business spends money.

Accrual Method: Report income when the business “earns” it and deduct expenses when the business “incurs” it. An example would be when a plumber performs a service, but is not paid immediately by the customer when the invoice is delivered. The plumber has “earned” the income, so it will be reported as such under the accrual method.  


Ensuring that your product or service is providing maximum value to your customers is more than enough work to keep you busy. That’s why many successful business owners stress the need for surrounding your business with worthy advisors - they can focus on those areas that owners sometimes put to the side. Our business’s goal is to help you focus on yours! Reach out to us and we will be happy to show you how we can help! 

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