Are you opening a new business? Here are five steps you need to consider for the IRS:
- What type of business entity you are going to establish? This will determine which tax form you have to file. The most common types are sole proprietorship, partnership, corporation and S corporation.
- Will you need an Employer Identification Number? Talk to your CPA or visit the IRS online for guidance. There’s a simple chart to help you determine whether or not you need an EIN.
- Good records = successful operation of your new business. You want to choose a recordkeeping system that clearly shows your income and expenses and clearly separates your personal expenses from your business ones. Except in a few cases, while the law does not require any special kind of records, the business you are in does affect the type of records you need to keep for federal tax purposes.
- Choose your tax year. Will it be a calendar year or a fiscal year? You’ll need to know this in order to be able to figure your taxable income on an annual accounting period.
- You must use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.
IRS Publication 583 has some helpful advice. You can download that from the IRS online. Of course, we at Laborde & Associates are also always here to help you with your accounting questions. We can even get you set up in QuickBooks, if you need some help.