Tips On How To Start A Business

For a variety reasons, including economic, social, and technological, starting a new business is more popular than ever with entrepreneurs in the USA. Many successful corporations began as home businesses and were able to transform themselves into major corporations as they increased sales and expanded their operations. As a result of technological advances, anyone with a cell phone, a computer with a high speed connection, and an idea can start and run a successful business.

If you are starting a new business this summer, you should be aware of federal tax responsibilities. Here are the top seven things you should know if you are planning to open a new business this year.

1. As a small business owner, you must decide what type of business organization you are going to use. The type of business organization you choose will determine the type of tax forms you will using in order to file taxes. The most common types of business entities are sole proprietorships, partnerships, limited liability corporations(LLC), C corporations and S corporations.


2. The type of business you operate determines what taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.


3. An Employer Identification Number is used to identify a business entity. Generally, businesses need an EIN. You can apply for an EIN by using Form SS-4 or you can file online at http://www.irs.gov/, or you can aply by phone. This EIN is your permanent number and can be used immediately for most of your business needs, including opening a bank account, applying for business licenses, and filing a tax return by mail. However, no matter how you apply (phone, fax, mail, or online), it will take up to two weeks before your EIN becomes part of the IRS' permanent records. You must wait until this occurs before you can file an electronic return, make an electronic payment, or pass an IRS Taxpayer Identification Number matching program.


4. Good records will help you ensure successful operation of your new business. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.


5. Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used. A calendar year ends on December 31 while a fiscal year ends on a date of your choosing. Governmental organizations normally use a fiscal year that ends on June 30 and begins on July 1.


6. 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 an 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.


7. Visit the Business section of IRS.gov for resources to assist entrepreneurs with starting and operating a new business.