Ever thought about being your own boss? Want your work to attest to your own skill, rather than have middle managers to deal with? Or maybe bring people together and work for a common dream? Consider starting your own business. Establishing a business in the United States is not relatively complicated. To start off, figure out what kind of business you want to participate in. Next, you need to decide on what kind of type of business structure you want (sole proprietor, partnership, corporation, etc.), and then develop a reliable and robust recordkeeping system.
Which business structure should I go with?
These are some of the most common business types that are established:
Sole proprietorship – Very simple type of business. Unincorporated and owned by a single individual. All profit, liabilities, and taxes are connected to the individual owner, and therefore are simply reported on an person’s 1040 form.
Partnership – Owned and operated by 2 or more people who are in a business relationship. Partners contribute capital and are involved in the operations of the company. Partnerships are known as “pass through entities”, which means the
partnership’s taxes are passed along to the partners of the firm and onto their individual tax forms. However, they still must file informal returns of the company’s operations.
Corporation – Shareholders exchange capital and other assets in exchange for stock ownership of a corporation. More complicated type of business with many rules and regulations surrounding it. Corporations are regarded as separate legal entities and are taxed like individuals. This means a corporation’s shareholders are double taxed (individually, and for their partial ownership of a corporation).
The nature of your business will likely determine what type of business you want to become. It probably wouldn’t make sense for a mom & pop donuts shop to be established as a corporation, but instead as a partnership, due to the simpler nature of establishing one. On that same note, an engineering firm would probably find a corporation more beneficial because of liability concerns and the ability to raise capital from shareholders.
Employer Identification Number, Tax year, and Accounting Methods
After deciding what type of business you want to be, obtain a Federal Employer Identification Number, similar to an individual’s social security number. Unsure if you need an IRS EIN, check out our previous article on this topic.
Next, designate your tax year. You can chose to follow the calendar year or go by a tax year of 12 months, such as designating a date in the middle of the year as your company start date. For example, you can decide your company’s start date as August 18, which would mean your annual filings would be centered around that time going forward.
You also must choose an accounting method between a cash basis or accrual basis. You may have come across these terms in an accounting class. Basically, being on a cash basis means you record cash income as it is received, while the accrual method means you record income as it is earned but may not necessarily be received at the time, such as money earned from a long-term contract. Most small businesses go with a cash basis for simplicity.
Recordkeeping
All businesses should strive to accurately maintain records. This will be needed when filing your annual returns and can help you in case the IRS audits your tax filings. Most small businesses use accounting software like QuickBooks to keep track of their transactions and maintain a physical filing bin for their business files, such as a business charter or other founding documents. Are you curious to find out how long you need to keep your business records?
Did you find this article informative? MiklosCPA is a Southern California CPA firm with knowledge and experience in helping businesses properly prepare their taxes. Follow us at our social media pages such as Facebook and Google+ for future tax tip articles.
As a business owner, your focus will always be to grow your business. But while you are finding these new opportunities, you are faced with a variety of challenges that can include managing your accounting and business taxes. We can relate with how frustrating this can be.
The following is a quick guide to help you better navigate the maze of business taxes. Need more help than that? Not a problem, MiklosCPA can guide you through!
We’ll provide you with a customized set of services to help you ease your stress and worry about your books so you can sleep at night. Here is a quick reference guide for some of the tax forms you may need:
Your Business
Responsible for
Reporting
Partnership
Annual return of income Employment taxes Excise taxes
IRS Form 1065 IRS Form 940 / 941 / 944 / 943 Excise Tax Forms
Partner in a partnership (individual)
Income tax Estimated tax Self-employment tax
IRS Form 1040 Schedule E IRS Form 1040-ES IRS Form 1040 Schedule SE
Sole proprietorship
Income tax Estimated tax Employment taxes Excise taxes Self-employment tax
IRS Form 1040 Schedule C-EZ / C / F IRS Form 1040-ES IRS Form 940 / 941 /944 / 943 Excise Tax Forms IRS Form 1040 Schedule SE
S Corporation
Income tax Estimated tax Employment taxes Excise taxes
IRS Form 1120-S IRS Form 1120-W IRS Form 940 / 941 / 944 / 943 Excise Tax Forms
S Corporation (shareholder)
Income tax Estimated tax
IRS Form 1040 Schedule E IRS Form 1040-ES
C Corporation
Income tax Estimated tax Employment taxes Excise taxes
IRS Form 1120 IRS Form 1120-W IRS Form 940 / 941 / 944 / 943 Excise Tax Forms
Remembering IRS filing deadlines for your business taxes and forms is a business by itself. However having a reliable tax firm, like MiklosCPA, a California based CPA practice can show you how to reduce your potential tax penalties by filing the right business tax forms correctly. Give us a call to set up a free consultation for your tax and accounting needs.
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As months and years pass by, your business records will help you to make vital business decisions along the way. These decisions will range from buying equipment, hiring employees, to thinking whether or not it’s time to get a bigger space. You will also want to know how much your original investment returned to you. To make these decisions, you have to make sure you have your records in order.
“Why keep records?”
Simply put, your business records are the history and accomplishments of what you have done so far. A good CPA will be able to give you the perspective you need on how things are going, and more importantly, what to do next. Wise tax planning is the key to running a successful business.
Some additional reasons are:
To help prepare your tax returns
To support items on your business tax returns
Help defend your deductions during with IRS audits
Prepare your financial statements, and
To provide easier access to a line of credit at the bank.
How Long Do I Keep Records?
You must keep all your records until the period of limitation ends for the return on which you have listed the item, whether it is income or deduction related. The period starts from the date the tax return was filed. If you filed the return earlier, the date is still on the due date of the return.
Should You…
Applicable Period
File a claim for a loss from worthless securities or a bad debt deduction
7 years
File a claim for credit or refund after you filed your return
Later of 3 or 2 years after the tax was paid
Owe additional tax
3 years
Do not report income that you should report and it is more than 25% of the gross income shown on the return
6 years
File a fraudulent return
No time limit
Do not file a return
No time limit
As a business owner, the last thing you may want to do at the end of the day is to sit down in front of a computer and type in numbers. Not to worry. MiklosCPA is here to help.
We can provide affordable and customized bookkeeping services at our California-based accounting firm. Whether you just need a few templates to get you started, or you would like us to take a more active approach in getting your information into QuickBooks or another accounting system, we work hard to help simplify the process for our clients so you can spend more time focused on the most important thing: YOUR BUSINESS.
Running a successful business requires professionals. Contact our accounting practice for a free consultation on how we can help your business grow with your own customized solution.
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Did you know that almost all businesses need an Federal Employer Identification Number from the IRS? An EIN identifies the tax account of corporations, partnerships, and other business entities. It is a unique piece of identification, similar to a driver’s license number.
Your business must have an Federal Employer Identification Number (EIN) if your business:
Maintains a qualified retirement account.
Operates as a Partnership, C-Corporation or S-Corporation.
Have employees.
Must collect and pay excise taxes.
Must pay employment taxes.
Getting an Federal Employer Identification Number (EIN) from the IRS can be daunting as you need to complete Form SS-4. In some cases, it may take 4 weeks or more. In addition, if you don’t fill it out correctly your application can be rejected if not completed properly.
If you are having some trouble, fear not! Call MiklosCPA! Our California-based accounting practice will help you get the right information together. Moreover, we can even obtain the EIN from the IRS for you! We may even be able to get that Federal Employer Identification Number shortly, as within a day or two!
At our professional tax practice, we let you focus on the most important thing: YOU!
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MiklosCPA is a top-rated cloud-based Certified Public Accounting firm in Los Angeles, Orange County, California serving small businesses and start-ups.
