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What You Need to Know About Federal Taxes and Your New Business. Lesson 1. Federal Employer Identification Number (EIN). Pay wages to employees Have a self-employed retirement plan Operate your business as a corporation or partnership Are required to file any of these tax returns:
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What You Need to Know About Federal Taxes and Your New Business Lesson 1
Federal Employer Identification Number (EIN) • Pay wages to employees • Have a self-employed retirement plan • Operate your business as a corporation or partnership • Are required to file any of these tax returns: • Employment • Excise • Fiduciary • Alcohol, Tobacco, or Firearms
Recordkeeping • You must keep: • Receipts • Sales slips • Invoices • Bank deposit slips • Cancelled checks • Other documents to substantiate • Income • Deductions • Credits
Recordkeeping • Prevent omission of deductible expenses • Establish earnings for self-employment tax purposes • Explain items on your income tax return
Recordkeeping • Publication 583 Starting a Business and Keeping Records
Recordkeeping How long should records be kept? • 3 years after the return is due or filed, or • 2 years from the date the tax is paid, whichever is later
Recordkeeping Keep employment tax records • Four years after the date on which the tax return becomes due, or the tax is paid, whichever is later.
Recordkeeping Publication 15 Employer’s Tax Guide
Forms of Business Organization • Sole Proprietorship • Partnership • Limited Liability Company • S Corporation • Corporation
Forms of Business Organization Sole proprietorship • A sole proprietorship is an unincorporated business that one person owns. Advantages • The simplest type of business organization Disadvantages • Capital is limited to whatever the owner generates.
Forms of Business Organization Partnership • A partnership is a relationship between two or more persons who join together to carry on a trade or business. Advantages • Easy to organize • Can have greater financial strength than a sole proprietorship • Combines managerial skills and judgment of the partners • Each partner has a person interest in the business
Forms of Business Organization Partnership • A partnership is a relationship between two or more persons who join together to carry on a trade or business. Disadvantages • The liability of the partners is usually unlimited • Decision authority is divided
Forms of Business Organization Limited Liability Company • An LLC may be treated as a sole proprietorship, a partnership, or a corporation. Advantages • Owners have limited personal liability for the debts and actions of the LLC • Management flexibility and the benefit of flow-through taxation
Forms of Business Organization Limited Liability Company • If you have a business of two or more people, you’re automatically classified as a partnership for federal tax purposes. • If you are a one person business, you’re automatically classified as a sole proprietor for federal tax purposes.
Forms of Business Organization S Corporation • An S Corporation is a small business corporation whose shareholders elect to have corporate income taxed like a partnership.
Forms of Business Organization Corporation • The law treats a corporation as a legal entity. Advantages • The life of the business is perpetual • The stockholders have limited liability • Transfer of ownership is easy • Easier to raise capital and to expand • Adaptable to both large and small businesses
Forms of Business Organization Corporation Disadvantages • It is taxed twice • It may be more difficult and expensive to organize
Forms of Business Organization • Sole proprietorship • Partnership • Limited Liability Company • S Corporation • Corporation
Choosing a Paid Preparer • Avoid preparers who claim they can obtain larger refunds than other preparers • Avoid preparers who base their fee on the amount of your refund.
Choosing a Paid Preparer • Ask questions and get references • Find out the person’s credentials • Find out if the preparer is affiliated with a professional organization • Never sign a blank return • Never sign a completed form without reviewing it and making sure you understand the entries • Consider whether the preparer will be around Tax evasion is punishable by up to five years imprisonment and a $250,000 fine.
Lessons for All Small Business Owners • What you need to know about federal taxes and your new business • How to set up and run your business so paying taxes isn’t a hassle • How to file and pay your taxes using a computer
Lessons for Some Small Business Owners • What you need to know when you run your business out of your home • How to set up a retirement plan for yourself and your employees
Lessons for Employers • What you need to know about federal taxes when hiring employees or contractors • How to manage your payroll so you withhold the right amount from your employees
Lessons for Employers • How to make tax deposits and file your payroll taxes using a computer • What you need to know about Federal Unemployment Taxes (FUTA)
Small Business/Self Employed Tax Center IRS.gov screen shot