To contribute to this event, the IRS has curated a variety of resources aimed at helping small business owners navigate their tax responsibilities with ease. During the week, the IRS plans to spotlight some of these resources, and @IRSnews is also gearing up for a special Twitter chat on Thursday.
One of the initial considerations when starting a business is the Employer Identification Number (EIN). Most business owners will require an EIN, a permanent identifier used for various business needs, from opening bank accounts to filing tax returns by mail. Business owners can apply for and receive their EIN instantly online at IRS.gov, free of charge.
Choosing the appropriate business structure is another crucial step in the process. This decision influences the type of income tax return form to be filed. The common business structures are Sole Proprietorships, Partnerships, Corporations, S Corporations, and Limited Liability Companies (LLC). Each structure has its specific tax implications, and the IRS will treat an LLC as either a corporation, a partnership, or as part of the owner’s tax return, depending on the elections made by the LLC and its number of members.
Understanding business taxes is a key aspect of running a successful small business. As per law, taxes are payable as income is earned. For small business owners and self-employed individuals, this typically necessitates making quarterly estimated tax payments throughout the year. The type of business determines the kind of taxes to be paid and how to pay them. The four general types of business taxes are Income Tax, Self-employment Tax, Employment Tax, and Excise Tax.
In addition to assisting with tax return preparation, maintaining organized records can aid small businesses in preparing financial statements, tracking income sources, recording deductible expenses, and monitoring their growth, among other benefits. Taxpayers are advised to keep their records for at least three years.
Lastly, small businesses must establish their taxable income based on a “tax year,” an annual accounting period for reporting income and expenses. They can opt for a Calendar year, which is 12 consecutive months beginning January 1 and ending December 31, or a Fiscal year, which is 12 consecutive months ending on the last day of any month except December. There’s also the option of a 52 to 53-week tax year, a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month.
National Small Business Week offers an opportunity for small business owners to gain essential knowledge and skills for efficient tax management, enabling the growth and sustainability of their enterprises. The IRS’s commitment to providing free resources is a much-needed support to this crucial sector of the economy.
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