If you are planning to open a new business, there are a number of tax and accounting issues you need to be aware of. The following are some of the more commonly encountered issues a new business owner needs to cope with.
1. Entity Selection – First, you must decide what type of business entity you are going to establish. The type of business entity will determine which tax form you have to file. The most common types of businesses are the sole proprietorship, partnership, corporation, S corporation and limited liability company. This office can assist you in making that determination and setting up the chosen entity. Depending on the type of entity you choose, you may also need the services of an attorney to complete legal documents required to establish the business.
2. Taxes – The type of business you operate determines what taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax. This office can assist you with the filings required for whichever business entity you select.
3. EIN – An Employer Identification Number (EIN) is generally used to identify a business entity. If you organize your business as a partnership or corporation, you will need an EIN. If you operate as a sole proprietorship, you will also need an EIN if you have employees or a Keogh pension plan. This office can assist you in determining your need for an EIN and help you obtain one.
4. Local Business License – Depending upon the community in which your business is located, you may also be required to obtain a business tax permit (which is sometimes referred to as a business license). This office can help you determine the need for one and assist with filing the application.
5. Sales Tax Permit – If the new business has retail sales, you will need to obtain a sales tax permit and periodically remit the sales tax collected from the sales. This office can assist you with obtaining the permit and setting up the payments. Even if you won’t be operating a retail sales business, you may need to register with the state for use tax purposes. Again, this office can help you with that registration if it is required.
6. Payroll – If you have employees, you will have to withhold and remit payroll taxes to the federal, state and sometimes local governments. We can help you set up your payroll system and register with the appropriate governmental agencies.
7. Information Reporting – If you make payments totaling $600 or more for the year to individuals who are not your employees, you will be required to issue a 1099-MISC to that individual shortly after the end of the year. This requires obtaining the individual’s name, SSN, and address prior to paying them for the first time. This requirement is extended to payments you make to corporations in 2012. This office can help you establish a procedure for collecting the required information and preparing the required filings after the close of the year.
8. Recordkeeping System – Establishing a good recordkeeping system right away can save a lot of grief in the future. This office can assist you in selecting and setting up a recordkeeping system suited to your business.
9. Accounting Method – Each taxpayer must also 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.
In closing, it is always easier and less expensive to set things up correctly in the first place than it is to fix the mistakes later. Even if you plan to accomplish some of the tasks listed above yourself, we highly recommend you consult with this office to ensure you are doing what is needed correctly and on time. There may also be other issues not included above that also need to be dealt with when setting up your particular business.