Six Tips for Starting a New Business

Start planning now and have everything in place when the time is right to start your new business.

National Small Business Week was September 22-24, 2020. Before COVID-19, you may have been dreaming about starting your own business. Economic uncertainty probably forced you to put those dreams on hold. On the other side of this pandemic, you may still feel the opportunity exists to move ahead with starting your business. Now is a good time to plan for that day and have everything in place for when the time is right.

Understanding the tax responsibilities that come with starting a business venture can save you money and help set you up for success. Here are some basic tips to get you started:

Six Tips for New Business Owners

1. Choose a Business Structure

The form of business determines which income tax return a business needs to file. The most common business structures are:

Sole Proprietorship: An unincorporated business owned by an individual. There is no distinction between the taxpayer and their business.
Partnership: An unincorporated business with ownership shared between two or more people.
Corporation: Also known as a C corporation. It’s a separate entity owned by shareholders.
S Corporation: A corporation that elects to pass corporate income, losses, deductions, and credits through to the shareholders.
Limited Liability Company: A business structure allowed by state statute.

2. Choose a Tax Year

A tax year is an annual accounting period for keeping records and reporting income and expenses. A new business owner must choose either:

Calendar year: 12 consecutive months beginning January 1 and ending December 31.
Fiscal year: 12 consecutive months ending on the last day of any month except December.

3. Apply for An Employer Identification Number (EIN)

An EIN is also called a federal tax identification number. It’s used to identify a business. Most businesses need one of these numbers. A business with an EIN needs to keep the business mailing address, location, and responsible party up to date. IRS regulations require EIN holders to report changes in the responsible party within 60 days. They do this by completing Form 8822-B, Change of Address or Responsible Party, and mailing it to the address on the form.

4. Have All Employees Complete These Forms

Form I-9, Employment Eligibility Verification U.S. Citizenship and Immigration Services
Form W-4, Employee’s Withholding Allowance Certificate

5. Pay Business Taxes

The form of business determines what taxes must be paid and how to pay them.

6. Visit Your State’s Website

Prospective business owners should visit their state’s website for information about state requirements.

A Final Note

Starting a new business can be challenging. It can be difficult juggling the day-to-day business activities that make you money with the details and record keeping required to successfully operate your business.

If you aren’t sure how to get the accounting groundwork started for your new business, contact your local tax professional.

Stay safe. Stay well. Stay home.