| > | | | | self employment tax for sole proprietors, |
| Starting a business can be overwhelming enough | | | | partners and S corporation shareholders. |
| trying to get up and running but when you think | | | | Corporations should make estimated quarterly |
| about all the tax requirements, your cup may | | | | payments if they expect to owe $500 for the |
| runneth over. Here is what you must know in | | | | year. Estimated tax payments are due quarterly. |
| order to start your own business on the right | | | | Penalties and interest can be hefty so you should |
| foot and avoid paying penalties and interest which | | | | make sure you comply in order to avoid wasting |
| can cost more than paying an accountant to do | | | | money on IRS penalties. |
| things right the first time. | | | | WHAT TAXES ARE DUE IF YOU HAVE |
| WHAT FORM OF BUSINESS SHOULD YOU SET | | | | EMPLOYEES IN YOUR SMALL BUSINESS? |
| UP WHEN STARTING YOUR BUSINESS? | | | | Your small business must pay social security and |
| There are several different options including a sole | | | | Medicare taxes, federal income tax withholding, |
| proprietorship, partnership, corporation, S | | | | federal unemployment tax along with your state |
| corporation or limited liability company. In general a | | | | and local income taxes. The associated tax |
| sole proprietorship works fine if you are very | | | | returns for reporting these taxes are in general |
| small, not too profitable and aren’t | | | | filed quarterly. Your business is entrusted to pay |
| concerned about legal liability issues. A partnership | | | | these taxes on behalf of your employees and not |
| is like being married to the other partners. If you | | | | only do you have penalties and interest that you |
| aren’t that cozy with them, you may | | | | will pay for not filing them timely but can also be |
| want to set up another type of entity. | | | | committing a crime due to the fiduciary |
| Corporations are best suited for business owners | | | | responsibility. You need to be sure you know |
| who want personal legal protection and have | | | | what you are doing here as the consequences |
| profit available beyond what they will need for | | | | could be costly. |
| their personal use. See for an example of what | | | | WHAT RECORDS SHOULD YOU KEEP WHEN |
| you can do with that available profit tax deferred | | | | YOU START YOUR BUSINESS? |
| until retirement. S Corporations are best when | | | | Except in a few cases, the law does not require |
| you are operating at a loss and want business | | | | any specific kinds of records. The most important |
| owner legal protection. Limited liability companies | | | | thing to ask yourself is can you go back to all of |
| will protect the business owner from personal legal | | | | the original receipts from the number on your |
| liability and, if structured properly, can be a | | | | return. If you were to be asked by an IRS agent |
| partnership, corporation or owner for federal | | | | to provide all the details of a certain number on |
| income tax purposes. | | | | your return, and you can not do that, you will be |
| DO YOU NEED AN EMPLOYER IDENTIFICATION | | | | at his whim on whether he will allow that |
| NUMBER (EIN) WHEN YOU START YOUR OWN | | | | deduction. An efficient accounting system with a |
| BUSINESS? | | | | solid audit trail which has been reconciled is the |
| You need an employer identification number if you | | | | safest way to be sure you have done this. |
| have employees, have a qualified retirement plan, | | | | These are just some questions you may have |
| operate as a corporation or a partnership, or need | | | | regarding starting your new business. If you have |
| to file employment or excise tax returns. You do | | | | more, e-mail me at and I will help you muddle |
| not need an employer identification number if you | | | | through the tax and business issues you may |
| are a sole proprietor and don’t meet any | | | | have. After all, those of us that have our own |
| of the requirements above. | | | | business know it’s the only way to go but |
| WHAT METHOD CAN YOU USE TO ACCOUNT | | | | getting up and running can be a bit of a challenge. |
| FOR YOUR INCOME AND EXPENSES WHEN YOU | | | | This article was intended to provide general |
| START YOUR SMALL BUSINESS? | | | | information about starting a business. It does not |
| The two most common methods are cash and | | | | contain all the rules and exceptions that may |
| accrual. The cash method in general allows you to | | | | apply to your situation. If you have further |
| report income and expenses in the tax year you | | | | questions regarding starting a small business, I can |
| receive it. The accrual method in general allows | | | | be reached at |
| you to report income and expenses in the tax | | | | Coming Soon - Year End Tax Planning and |
| year you earn or incur it even if you | | | | Preparation |
| haven’t received payment or paid it yet. | | | | CONTACT INFORMATION: |
| WHAT KINDS OF FEDERAL TAXES WILL YOU | | | | Dianne Goodman, CPA |
| OWE WHEN STARTING A BUSINESS? | | | | Comprehensive Small Business Solutions, PC |
| All businesses must file a return. The form used | | | | 505 323-2307 |
| depends on what form of business you set up | | | | 1 866-531-3035 toll free |
| when starting your business. The federal income | | | | You have permission to reprint what you just |
| tax is a pay-as-you-go tax. In general you must | | | | read. Use it in your ezine, at your website or in |
| pay the tax as you earn or receive income during | | | | your newsletter. The only requirement is to |
| the year to avoid penalties and interest if your | | | | include the following footer... |
| tax liability for the year exceeds $1,000 including | | | | |