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IRS Tax Tips August 22, 2022
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Issue Number: Tax Tip 2022-128
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*Aspiring entrepreneurs: learn the basics of setting up a business*
New entrepreneurs can start out on the right foot by making sure they understand the tax responsibilities of running a business. The process can seem daunting, but IRS.gov has resources to help new business owners [ [link removed] ].
Here are a few things new entrepreneurs need to do when starting their business.
*Choose a business structure
*The form of business [ [link removed] ] determines which income tax return a business taxpayer needs to file. The most common business structures are:
* Sole proprietorship [ [link removed] ]: An unincorporated business owned by an individual. There's no distinction between the taxpayer and their business.
* Partnership [ [link removed] ]: An unincorporated business with ownership shared between two or more people.
* Corporation [ [link removed] ]: Also known as a C corporation. It's a separate entity owned by shareholders.
* S Corporation [ [link removed] ]: A corporation that elects to pass corporate income, losses, deductions and credits through to the shareholders.
* Limited Liability Company [ [link removed] ]: A business structure allowed by state statute.
*Choose a tax year
*A tax year [ [link removed] ] 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.
*Apply for an employer identification number
*An EIN [ [link removed] ] is also called a federal tax identification number. It's used to identify a business. Most businesses need one of these numbers. It's important for a business with an EIN 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 [ [link removed] ] and mailing it to the address on the form.
*Have all employees complete these forms*
* Form I-9", "Employment Eligibility Verification U.S. Citizenship and Immigration Services [ [link removed] ]
* Form W-4 Employee's Withholding Allowance Certificate [ [link removed] ]
*Pay business taxes
*The form of business determines what taxes must be paid [ [link removed] ] and how to pay them.
*Visit state's website
*Prospective business owners should visit their state's website [ [link removed] ] for info about state requirements.
Share this tip on social media -- #IRSTaxTip: Aspiring entrepreneurs: learn the basics of setting up a business. [link removed]
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