Start the American Dream Free from IRS Scrutiny
The American Dream is about many things, one of which is being able to start your own business and make it big.
Part of that is paying your business taxes and staying in good graces with the IRS. Running afoul with Uncle Sam’s tax authorities can harm your business’s ability to obtain credit and can hamper cash flow.
So, if you’re harnessing your entrepreneurial spirit and are starting your own business, make sure to follow these IRS guidelines for entrepreneurs:
- Apply for an Employer Identification Number (EIN): This is essentially your business’s identification number, and all businesses need one. Obtaining one is as easy as clicking a button on the IRS’ website. Also, make sure to check if you need a state EIN.
- Choose your business’s structure: Will your business be a corporation, sole proprietorship, LLC or a partnership? Which type determines which income tax return you’ll have to file.
- Choose your tax year: Part of determining your business’s taxable income rests on your tax year. A tax year is an annual accounting period for reporting income, keeping records and declaring expenses. You can go with the calendar year (Jan. 1 to Dec. 31) or a fiscal year (12 consecutive months ending on the last day of any month except December).
- Choose your accounting method: The most commonly used methods are the cash and accrual methods. The cash method requires you to report income and deduct expenses in the tax year they are received or paid. The accrual method requires you to report income in the tax year it’s earned and deduct expenses in the tax year they’re incurred, regardless of when you actually receive the income or pay the expense.
- Pay your business taxes: Your type of business determines what taxes you’ll have to pay. All businesses pay income tax. Other taxes, like, excise, employment or self-employment taxes are unique to certain businesses.
Make sure to check with your state’s regulations so nothing important is overlooked. Running your own business can be demanding, but it is also liberating.
Being free of tax debt is also liberating. Dealing with a wage garnishment or bank levy only distracts you from doing what you love. Hiring a tax attorney can help ensure that you’re spending your time running your business instead of running from the long arm of the IRS.