Summer is winding down, and if your “how I spent my summer vacation” turned into starting a business, or if you are planning to start a business before the end of the year, visit IRS.gov. There are a lot of articles available on the Internet about starting a business, but it’s important to get the right federal tax information from the start. In Tennessee, state business tax questions should be directed to TN.gov.
New business owners need to consider:
1. Business Structure. An early choice to make is to decide on the type of structure for the business. The most common types are sole proprietor, partnership and corporation. The type of business chosen will determine which tax forms to file.
2. Business Taxes. There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. In most cases, the types of tax a business pays depends on the type of business structure set up. Taxpayers may need to make estimated tax payments. If so, use IRS Direct Pay to make them. It’s the fast, easy and secure way to pay from a checking or savings account.
3. Employer Identification Number (EIN). Generally, businesses may need to get an EIN for federal tax purposes. Search “EIN” on IRS.gov to find out if the number is necessary. If needed, it’s easy to apply for it online.
4. Accounting Method. An accounting method is a set of rules used to determine when to report income and expenses. Taxpayers must use a consistent method. The two most common are the cash and accrual methods:
a. Under the cash method, taxpayers normally report income and deduct expenses in the year that they receive or pay them.
b. Under the accrual method, taxpayers generally report income and deduct expenses in the year that they earn or incur them. This is true even if they get the income or pay the expense in a later year.
Remember that the IRS does not initiate contact using social media or text message. The first contact normally comes in the mail. Those wondering if they owe money to the IRS can view their tax account information on IRS.gov to find out.