Tax complexities can be confusing.
Creating and running a small business in America can be a lot of hard work. It can also be rewarding. Unfortunately, doing the tax part of this correctly can be a real head-ache. Here are some tips.
Other reporting may be required depending on your type of business and your state and local requirements.
Start-up expenses. Keep track of expenses prior to starting your business. Even without revenue, these costs can be deducted using the IRS start-up rules.
Register your business. This includes setting up a legal business entity (sole- proprietor, S-Corp, C-Corp, LLC or Partnership), filing for permits at the state level, filing for an EIN (employer identification number) at the federal level and any business entity registrations required at the federal level.
Keep separate accounts. One of the biggest mistakes made by budding new businesses is combining personal with business expenses. The IRS is quick to make all expenses personal, non-deductible expenses when this happens. Having a separate checking account and a credit card for your business are good ideas.
Ordinary and necessary. These two words are key terms in determining if your expenses are deductible as business expenses for tax purposes.
- Ordinary: An ordinary expense is one that is common and accepted in your trade or business.
- Necessary: A necessary expense is one that is helpful and appropriate for your trade or business.
Know the additional filings required. Here are some of the key ongoing requirements:
- annual business filing
- payroll reports (monthly, quarterly, annually)
- monthly sales tax filings
- payroll tax deposits
- unemployment filings
- workman’s compensation filings
- quarterly estimated tax filings (as appropriate)
- annual tax returns and information returns (W-2s and 1099s)
- applicable business licenses/permits
Create a calendar. Create a calendar to help you remember important filing dates. Online calendars with automatic reminders will help make the complexity of reporting easier to manage.
Ask for help. You should focus on developing and growing your business. The hassle of keeping track of the paperwork and required filings is something that proper assistance can make easier.
The IRS understands the regulations on small businesses are complex and confusing. In their effort to help, they have created a set of resources. They can be found at: IRS small business resource center
