When starting a new business, a wise first step is to seek the advice of your CPA.
Some things you might want to consider before starting the business:
- Business Structure – Determining the business structure should be the first decision that you make. The basic choices are sole proprietorship, corporation, limited liability company or partnership. There are two different types of corporations: C corporation and S corporation. A limited liability company defaults to being taxed as a partnership, or a sole proprietorship in the case of a single member LLC, but may elect to be taxed as either a C or an S corporation. The type of entity you select determines what forms you will need to file with the IRS and when you will need to file them.
- Business Taxes – The four basic types of business taxes are payroll, income, self-employment and excise. The business structure you choose affects which taxes you will be subject to. The income tax could be either corporate income tax or individual income tax – again depending on the business structure.
- Employer Identification Number – You are required to have an employer identification number if you have payroll or if you choose the corporate or partnership form of business structure. Apply for your EIN through the IRS.
- Accounting Method – An accounting method is a set of rules that you use to determine when to report income and expenses. The three methods available are cash, accrual and hybrid. Most taxpayers will choose the cash-basis method of accounting unless they are required to select another method. You are required to use the accrual method when your average gross receipts exceed $5 million computed over a three-year period.
- Employee Health Care – The Small Business Health Care Tax Credit is available to businesses that employ fewer than 25 employees who work full-time, or a combination of full-time and part-time, and purchase insurance through the Exchange. The maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers, such as charities. The employer shared responsibility provisions of the Affordable Care Act affect employers employing at least 50 full-time equivalent employees.
Learn the tax basics of starting a business on IRS.gov at the Small Business and Self-Employed Tax Center.
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Teal, Becker & Chiaramonte, CPAs