Starting a new business can be an exciting venture and the beginning of a new career. But in order to make a successful start, you need to be sure to set up your tax information properly to insure a good working relationship with the IRS in the years ahead. While it is important to consult with a tax professional or accountant about this process, such as 1-2-3 Financial Services in Warwick, RI, this checklist can assist in familiarizing yourself with the areas you need to concentrate on in the early stages of your business.
Choose an Accounting Method
This step is crucial in handling your books going forward, as well as calculating for the IRS what and how much you have made. Keep in mind, there are several options for accounting methods. The first is the accrual process, based upon the idea that you would account for expenses when they occurred, not when you actually paid them. For larger companies, this system is more common.
Smaller businesses may be more familiar with the cash based system, which charged expenses to the books as they are paid. They also credit income when it was received versus when it was invoiced.
Working with your accountant, you can determine which option would be effective for your long term growth and goals. Once an accounting method is begun, it can be very difficult to switch to another one.
In addition, each of these methods has their own filing rules with the IRS, so you will want to be sure to understand the regulations of your choice as well.
Getting an EIN
The IRS also requires that you get an employer identification number, or EIN. This number is essentially a social security number for your business. The IRS will use it for all correspondence with you to determine your obligations, if you have tax liabilities or if your business is pulled for an audit.
Additionally, any estimated payments would be made under this number to be credited properly to your business. To receive an EIN, you can apply with the IRS over the phone or online via their website.
Estimated Tax Payments
If you own a small business, you will need to make regular payments to the IRS to cover your tax liability throughout the year. This is typically done in quarterly payments. Working with your tax professional, you can determine what your payments should be based on your estimated income. If it is your first year, these payments may be based on a business income estimate from a similar business to yours.
Making those payments will make sure that your business does not receive any penalties due to a late tax payment or underpayment of tax.
Employment Taxes
If you will be employing individuals to work in your business, you will need to be sure that your business pays all the applicable payroll taxes. You will also need to be sure that you meet all the regulations for your business under the Affordable Care Act. Will you be offering any retirement savings options? If so, will you be making any matching contributions? You will need to determine these items to assist in finding a payroll service to care for your obligations based on your pay schedule.
If you choose to use independent contractors, then you will need to work with your tax professional or accountant to determine what your tax obligations may be. For your employees and independent contractors, you will need to issue W-2 or 1099 on an annual basis.
Tracking Expenses
Throughout the year, it is important to keep your receipts and all backup organized throughout the year. Your tax professional will be able to assist you in determining what deductions apply to you. Then you need to make sure that you have a secure place to store your files for the required seven years. At the same time, these records will assist your accountant in filing your taxes on an annual basis.
As you can you see, starting your business can be exciting but requires several tasks be accomplished to get your business off on the right foot. Working with a tax professional, you can take advantage of their knowledge to make the best choices for your new business.
Click the link below to connect with your tax professional or accountant at 1-2-3 Financial Services in Warwick, RI, who can assist you in making the necessary decisions for your new business, including your initial IRS requirements.
