IRS Articles - Six Tax Tips for New Business Owners
Are you opening a new business this summer? The IRS has many resources available for individuals that are
opening a new business. Here are six tax tips the IRS wants new business owners to know.
1. First, you must decide what type of business entity you are going to establish. The type of business entity will
determine which tax form you have to file. The most common types of business are the sole proprietorship,
partnership, corporation and S corporation.
2. The type of business you operate determines what taxes you must pay and how you pay them. The four general
types of business taxes are income tax, self-employment tax, employment tax and excise tax.
3. An Employer Identification Number is used to identify a business entity. Generally, businesses need an EIN. Visit
IRS.gov for more information about whether you will need an EIN. You can also apply for an EIN online at IRS.gov.
4. Good records will help you ensure successful operation of your new business. You may choose any
recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few
cases, the law does not require any special kind of records. However, the business you are in affects the type of
records you need to keep for federal tax purposes.
5. Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The
calendar year and the fiscal year are the most common tax years used.
6. Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to
report income and expenses. The most commonly used accounting methods are the cash method and an accrual
method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in
the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and
deduct expenses in the tax year you incur them.
IRS Publication 583, Starting a Business and Keeping Records, provides basic federal tax information for people
who are starting a business. This publication is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Visit the Business section of IRS.gov for resources to assist entrepreneurs with starting and operating a new
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