You’ve decided to take the plunge. You are going to start your own business. Congratulations! There are some tax issues you need to consider before you start pursuing your dream business.
The first step in starting a business for tax purposes is figuring out what kind of business structure you will use. If you do nothing, you will be automatically considered a sole proprietor if you are the only owner. If there are two or more owners, you are automatically considered a partnership. Many small businesses prefer to choose from two other options – a corporation or limited liability company. You would be smart to confer with an account before making a choice as it can be hard to change once you get up and running.
You and I are tracked for tax purposes by our social security number. Well, what about a business entity? The IRS requires formal businesses such as corporations and limited liability companies to obtain an “Employer Tax Identification” number. This is usually referred to as an EIN. It is the equivalent of the social security number you and I use. If you pursue your business as a sole proprietor, you usually do not need an EIN.
The third step to keep in mind is record keeping. This is a vital step. My record keeping in my first business was a disaster because I did not start off doing it correctly. Don’t make this mistake. You need to be able to prove all your expenses should the IRS want to see your records. Get organized and store your documents in a manner that you can pull them out and understand what the heck you were thinking when you did the taxes!
This leads to the next step, which is keeping your books. You can do it yourself or hire someone who is versed in it. Personally, I just hired someone. I travel a lot on business, so I also use one of the online systems. These allow you to log in to the program from wherever you are to see your books. You can be on any computer. It is similar to logging into free email accounts like Gmail, which makes things very convenient.
If you haven’t already, you should go see a good CPA. Taxes are incredibly complex and aggravating. You can try to take the time to understand them all, but there really isn’t any reason to. Paying a good CPA is the way to go. You want someone who is going to save you money with simple strategies, to wit, they are proactive in helping you. They’ll save you a bundle and you can even deduct their fees!
Starting a new business can be daunting at times. Don’t let it be. Just jump in with both feet and you’ll get the hang of it before you know it!
Richard A. Chapo writes about
BusinessTaxRecovery.com where you can learn more about vital
tax deductions that can save you a bundle on your personal and business taxes.
