Starting up your own business requires a lot more than just coming up with a product and service to sell. Establishing and building up your business involves a lot of small details that you have to take care of as a new business owner. One of those things you have to consider is your business’s taxes, and how that will impact you and your company. For everyone out there setting up a new business, here is some important tax advice that you should keep in mind.
Choose a Business Structure Carefully
In order to become an official business, you’ll need to select a business structure, also known as a business designation. There are a lot of different designations to choose from—partnership, corporation, sole proprietorship, and more. The structure you choose impacts how your company is taxed, so do your research regarding all the pros and cons of each designation type.
Of course, the options available to you will also depend largely on how your company is set up, the number of owners you have, and other important factors. However, you should still keep your taxes in mind when choosing your business designation.
Select Your Tax Year
Business taxes can operate differently than your personal taxes. While your personal taxes are almost always based on the calendar year, business taxes can vary. You may be able to choose whether to use the standard calendar year for reporting your taxes or adopt a fiscal year that differs from the calendar year; this is usually based on your company’s records and accounting methods.
Adopting a fiscal year that is different from the calendar year isn’t an option for every business. You can check out the IRS’s page on business tax years to review some information on how to qualify for a separate fiscal year.
If you do qualify, establishing your tax year simply involves filing your first business tax return using the desired tax year. So, if your business has already filed a tax return using the calendar year, your tax year has already been selected. You can change your fiscal year, but you’ll need to file Form 1128 with the IRS to request this change.
Register for an EIN
Even if you don’t have any employees yet (aside from yourself), you’re still considered an employer now. It’s important that you register for an Employer Identification Number (EIN) as soon as possible. This number is used to identify your business and file your company’s tax return, regardless of how many employees you have on your payroll.
Get Employee Paperwork
Whenever you do start hiring employees, it’s incredibly important that you do everything by the book and have every employee complete the proper employment paperwork. Many new business owners let that paperwork slide because they’re often hiring friends and family members in those early days. But whether you’re hiring a college friend or your own mother, everyone you hire should fill out both a Form I-9 and a W-4 before they begin work as an employee.
You could also opt to hire someone as an independent contractor, which is often a nice, flexible option for new business owners since you’re not expected to provide benefits to contractors. If you decide to go this route, you should have your contractor complete a Form W-9. Additionally, have a written contract with them that outlines the following information:
- Work to be performed
- Applicable fees
- Deadlines
- Non-disclosure agreement
- Any other pertinent information for your business and the services they’ll be providing
Keep copies of all employee forms and contracts filed away in a secure location, and make sure to hold onto them for at least four years for business tax purposes.
Pay Your Business Taxes
Last, but certainly not least, make sure you’re filing and paying your business taxes. As we stated earlier, your business designation impacts how your company will be taxed, and your selected fiscal year will impact when you’ll have to pay those taxes. If your fiscal year is the same as a calendar year, your tax deadline will be March 15th; if you extend your tax return, the extension deadline will be September 15th. For businesses with a different tax year, you’ll need to speak to your business tax expert to figure out exactly when your taxes will be due.
It’s important to note that business taxes are far more complex than personal taxes. While you may have been comfortable filing your own tax return in the past, when you had W-2 income, you shouldn’t attempt to file your own taxes as a new business owner. Contact Witts CPA today to speak to one of our accountants specializing in business taxes.