Thinking of starting a Business, there are many factors to consider, such as planning how to handle management, hiring, buying, and marketing, that sometimes the issue of taxes is forgotten about.
Starting your business will require time, preparation, and preparing tax obligations might affect how many steps you have to take when starting your new business. You must understand the numerous taxes you might encounter so that you can factor these costs into your financial projections of your business plan.
First thing first, you need to determine is your businesses Legal Structure. This is a startup taxes related decision that you must make. Potential legal business structures include sole proprietorship, partnership, c- corporation, s-corporation, limited liability company (LLC). The legal structure will determine what taxes you will have to pay and how to pay them. Here are the five types of business taxes:
- Income tax
- Self-employment tax (the other half of your social security and Medicare taxes that are usually paid by an employer, but must be paid yourself when self-employed)
- Estimated tax (numerous businesses (including self-employed individuals) is required to make payments quarterly
- Employer tax
- Excise tax
The choice you make is not permanent, as a company grows over the years, it is common to change to a different legal structure that makes more sense for your growing business. But this is something you do not have to worry about when first starting. You are choosing a legal structure for the company you have now, not the one you hope to have in the future.
Once an appropriate legal structure has been chosen for your new business, the majority of states require that the business name be registered. As soon as this is completed, you will have to register for your state and its local taxes. Once this is achieved, you will receive a tax identification number and be set up for worker’s compensation, unemployment and disability insurance.
As soon as you have your tax identification number, you can move forward with obtaining a business license and any necessary permits. These permits are required depending on the type of business you are starting and which state it is located in.
Running Your Business
As your business begins business operations, you will be able to identify the tax deductions you are eligible for. You need to continually be on the lookout for tax deductions you could qualify for. Make sure your records are kept to up to date all through the year and keep track of all your receipts, invoices and other relevant documents. You need to keep your books and accounting up to date and all of your receipts, so in the chance you are ever audited, you can provide the documentation to the government. Many everyday business expenses are eligible for tax deductions, and some of these include:
- Equipment and supplies
- Business travel, including mileage, tolls, fuel and parking
- Meals and entertainment expenses, such as business dinners, or entertaining clients
- Training classes and materials that help improve, or maintain skills relevant to the business
- Marketing expenses
- Health insurance premiums paid by the business
Yearly, the tax laws are changing, so when staring your store, check the Tax Guide for Small Business published by the IRS to keep up to date. Startups usually have tight budgets and might be eligible to deduct money from your start-up costs. This is when hiring a respectable tax professional can help you in starting up and maintaining your finances for taxes.