Essential Tax Advice for New Business Owners

Woman behind cafe counter holding Open signStarting a new business is a thrilling venture, especially if it’s your first business. You may be so excited about the prospect that you’re ready to dive in and start marketing your company. But there are so many other things that go into establishing a business than the products or services you provide and marketing them to potential customers. There are a lot of things that go on behind the scenes of a business, and those little details will take up a big portion of your time as a business owner. One of those behind-the-scenes details you’ll need to focus on is your company’s taxes. If you’re new to business ownership, here are some tax-related tips that you should keep in mind.

Choosing a Business Structure

When you’re registering your business with the government, you’ll need to select a business structure, or business designation. There are a lot of different types of business structures, including:

  • Partnerships
  • Sole proprietorships
  • Limited liability companies
  • Corporations (with many subset designations)
  • And so on

It’s important to select the right designation for your business, based on who owns and operates the company as well as a few other factors. But keep in mind that the designation you select will impact how your company is taxed. So, do your research before selecting a business designation, or speak to one of our accountants to get help in choosing the right one for your company.

Selecting a Tax Year

If you’ve never owned a company before, you may not even be aware that businesses can have a different tax year that individual taxpayers. Personal taxes are pretty much always based on the calendar year, starting on January 1st and ending on December 31st. But businesses can actually choose their tax year by adopting a fiscal year that begins and ends at a different time of the year. However, this is only available to certain businesses, so be sure to discuss your options with your accountant.

Selecting your tax year is as simple as filing your first tax return for your business using the desired tax year. You can also file Form 1128 with the IRS to change your tax year. Please note that adopting a different fiscal year does change your tax deadlines for your business, so keep this in mind.

Get Your EIN

Congratulations! You have now officially joined the ranks of employers! Even if you don’t have an employee yet (besides yourself), you’re still considered an employer and, as such, need to have an Employer Identification Number (EIN). This number is used to identify your business for taxes and other purposes, regardless of whether you have hundreds of employees or only yourself.

Have Proper Paperwork for Employees

If and when you finally do start hiring other employees, you need to ensure that they complete the proper paperwork. Many first-time business owners make the mistake of ignoring new-hire documentation because they’re hiring close friends and family members in the beginning. Don’t make this mistake. Whether your employee is your mom, your best friend, or your spouse, make sure they fill out both a W-4 and an I-9 before they start working.

If you’re hiring someone as an independent contractor instead of an employee, make sure they fill out a W-9 for you. Additionally, have a formal contract with them that clearly outlines the following:

  • Scope of the work to be performed
  • Their fee structure
  • Deadlines for the work
  • Any other pertinent information

Ensure that all of your workers (whether employees or contractors) have copies of their employment documents, and keep a copy for yourself. File these in a secure location and hold onto them for at least four years, even if the employee has moved on or the work with the contractor has ended.

Pay Your Business’s Taxes

This may sound obvious, but first-time business owners can often overlook the fact that the income they receive from their business is largely untaxed. But this doesn’t mean that you can just hang onto that income and pay all of your business’s taxes when you file your return. The United States has a pay-as-you-earn tax system; for a business owner, this often means making estimated tax payments on a quarterly basis to ensure that you’re paying taxes on your business income as you earn.

If you need to learn more about making quarterly estimated tax payments, or if you’re looking for an accountant to help with your business’s tax and accounting needs, contact us today to schedule a consultation.