As an entrepreneur it is important to know about taxes.  For many new business owners it is a challenge to learn IRS requirements. Or to hire a partner who will focus his or her energies on the tax part of the business while you can focus on your core competencies.

 

Here are questions to consider before meeting with your accounting professional.  They will need to know your answers in order to determine your tax filing status with the IRS:

 

• Is your new venture a business or a hobby?  The answer will determine, among other things, taxes paid to the IRS.  Consider your venture a business and reap the most tax benefits including interest income or salary deductions.  Additionally you may be able to carry over unused business losses as offset to future profits. If a hobby, you can only deduct hobby expenses from hobby income. Consult BASC Expertise before making a decision keeping in mind that you can switch from hobby to business if the business model changes.

 

• Who is tracking and paying taxes for your venture? As a sole proprietor or partnership you are responsible for self-employment taxes on the profits from your business. If you have employees, the business tax expense includes employment taxes. The business pays portions of employment taxes including Social Security, Medicare, Workers Compensation, and Federal and State Unemployment Compensation. Employment taxes are all computed as a percent of the wages the business pays its employees.Selling a product or service? You will have to collect sales tax and pay it to the state on a monthly tax return. The business will not pay state sales taxon goods and services it purchases for resale or to manufacture goods for resale. However, the business pays sales tax on its other purchases.         

 

As a business owner you will have to pay estimated taxes on the profits your business earns. If the business is a corporation, it may have to pay quarterly estimated income taxes. These payments will reduce the income tax paid at the end of the year. If you expect to have less than $1,000 in tax liability you may not have to pay estimated taxes.

 

Tax liabilities also include state and city income taxes. Businesses may also be required to pay a state or county “intangibles” tax on inventory and property used in the business. If your business owns property, there will also be real estate taxes to take into consideration.

 

• How is your business organized and filed?  Reaping tax benefits is dependent in part on how the business is organized.  The type of business structure can also determine how much and when your business pays taxes. 

 

• Understanding the business structure and filing status leads to asking your accountant about record keeping.  Before you make your first sale and pocket your first dollar it is important to know which records you need to keep. At a minimum you need to track each sales invoice and each purchase. We have other tips for tracking expenses for reference.

 

 

Because the IRS continually changes its rules and regulations, many small business owners find it easier to work with a bookkeeping or accounting professional such as BASC Expertise. Even if you hire an accountant, you want to make certain you meet with him or her regularly so that you are continually apprised of the financial health of your business.  

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