With the changes in the economy, entrepreneurship is gaining popularity as people are filling gaps left by companies that have folded or contracted during the downturn. There are numerous tax implications and financial considerations for starting a new business through which the professionals in our firm can help you navigate. The following five tips should provide you some insight into the types of issues you need to consider when hanging your shingle.
- Type of Business The most common types of businesses are sole proprietorship, partnership, corporation, S corporation, and Limited Liability Company. The type of business you establish determines which tax forms you will need to file.
- Types of Taxes The type of business you operate also determines what types of taxes you will pay and how you will pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.
- Employer Identification Number A business typically needs to get an Employer Identification Number to use as an identifier for tax purposes. Contact us for more information about how this number is used.
- Recordkeeping Good records will help you keep track of deductible expenses, prepare your tax returns and support items that you report on your tax returns. Good records will also help you monitor the progress of your business and prepare your financial statements. Our professionals can help you develop strong recordkeeping practices and prepare your financial statements for you.
- Tax Year Every business taxpayer must figure taxable income on an annual basis called a tax year. Your tax year can be either a calendar year or a fiscal year. There may be advantages to choosing a fiscal year over a tax year, depending on your industry type and marketplace.
- Accounting Method 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 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.
The professionals in our office can assist you in developing strong accounting practices for your new business so you can measure your success accurately Contact us today!