- Type of Business. Early on, you will
need to decide the type of business you are going to establish. The most
common types are sole proprietorship, partnership, corporation, S
corporation and Limited Liability Company. Each type reports its
business activity on a different federal tax form.
- Types of Taxes. The type of business you run usually
determines the type of taxes you pay. The four general types of business
taxes are income tax, self-employment tax, employment tax and excise
tax.
- Employer Identification Number. A business often needs to
get a federal EIN for tax purposes. Check IRS.gov to find out whether
you need this number. If you do, you can apply for an EIN online.
- Recordkeeping. Keeping good records will help you when it’s
time to file your business tax forms at the end of the year. They help
track deductible expenses and support all the items you report on your
tax return. Good records will also help you monitor your business’
progress and prepare your financial statements. You may choose any
recordkeeping system that clearly shows your income and expenses.
- Accounting Method. Each taxpayer must also use a consistent accounting method, which is a set of rules that determine when to report income and expenses. The most common are the cash method and accrual method. Under the cash method, you normally report income in the year you receive it and deduct expenses in the year you pay them. Under the accrual method, you generally report income in the year you earn it and deduct expenses in the year you incur them. This is true even if you receive the income or pay the expenses in a future year.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication
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