To contribute to this event, the IRS has curated a variety of resources aimed at helping small business owners meet their tax obligations with ease. During the week, the IRS plans to spotlight some of these resources, and @IRSnews is also gearing up for a special Twitter chat Thursday.
One of the first considerations when starting a business is the Employer Identification Number (EIN). Most business owners require an EIN, a persistent identifier used for various business needs, from opening bank accounts to filing tax returns through the mail. Business owners can immediately apply for and receive their EIN online at IRS.gov for free.
Choosing the right corporate structure is another crucial step in this process. This decision affects the type of income tax return to be filed. The usual business structures are sole proprietorships, partnerships, corporations, S corporations and limited liability companies (LLC). Each structure has its specific tax implications, and the IRS treats an LLC as either a corporation, a partnership, or part of the owner’s tax return, depending on the decisions made by the LLC and its number of members.
Understanding business taxes is a key aspect of running a successful small business. By law, taxes are payable when income is earned. For small business owners and the self-employed, this typically requires quarterly estimated tax payments throughout the year. The type of business determines the type of taxes to be paid and how to pay them. The four general types of corporate taxes are income tax, self-employment tax, employment tax, and consumption tax.
In addition to assisting with filing tax returns, keeping organized records can help small businesses with, among other things, preparing financial statements, tracking income sources, recording deductible expenses, and monitoring their growth. Taxpayers are advised to keep their records for at least three years.
Finally, small businesses must determine their taxable income based on a “tax year,” an annual accounting period for reporting income and expenses. You can choose a calendar year, which is 12 consecutive months beginning on January 1st and ends on December 31st, or a fiscal year, which is 12 consecutive months and ends on the last day of any month except December. There is also the option of a 52 to 53 week tax year, a tax year that varies between 52 and 53 weeks but does not have to end on the last day of a month.
National Small Business Week offers small business owners the opportunity to acquire essential knowledge and skills for effective tax management to enable the growth and sustainability of their businesses. The IRS’s commitment to providing free resources is much-needed support for this crucial sector of the economy.
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