In the excitement of starting one's own business, some things may be forgotten along the way.
For many California residents considering a business formation, thorough research and planning is essential. While getting caught up in the details of the enterprise itself, many new business owners may overlook some significant tax considerations. The IRS suggests that new or prospective business owners review a few key items before kicking off their new businesses.
One of the biggest steps one should take is to determine the financial definition of the new company: Is it a sole proprietorship, corporation, S corporation or Limited Liability Company? The designation determines what tax forms will need to be filled out. Another major item to establish is an Employee Identification Number, or EIN. Some business require a Social Security number as the EIN while others need a separate ID.
Next on the list is consideration of what taxes the business owner will pay, which could be categorized as self-employment, income, employment or excise taxes. The type of tax is determined by what is done through the business. With everything established, the most important thing to do is keep accurate records of one's assets and expenses and figure out if using the cash or accrual method is best for reporting the information to the IRS.
Business law attorneys may be able to help California residents considering a new business venture by guiding them through items like establishing an EIN and determining the type of taxes they will be liable for in addition to weighing the different options they have for the types of entities they could establish. These lawyers may also be able to help them determine if there are any additional state and federal considerations to be made before launching an enterprise.
Source: Exponent Telegram, "IRS: Tax tips if you're starting a business", July 03, 2013