SMALL BUSINESS AND SELF-EMPLOYED

 

There are 3 primary components to a small business the starting, operating and closing processes.

 

Starting a Business

Listed is the basic federal tax information for people who are starting a business, as well as information to assist in making basic business decisions. The list should not be construed as all-inclusive. Other steps may be appropriate for your specific type of business.

• For information regarding state-level requirements for starting and operating a business, please refer to your state's website.

What New Business Owners Need to Know About Federal Taxes          

 

• Is it a Business or a Hobby?     

• Selecting a Business Structure

• Employer Identification Number (EIN)

• Business Taxes

• Recordkeeping

• When Do I Start My Tax Year?

• Checklist for Starting a Business

• Types of Retirement Plans

• Small Business Publications

 

Operating a Business

• Employer ID Number (EIN) An Employer Identification Number (EIN) is also known as a federal tax identification number, and is used to identify a business entity. Applying for your EIN is a simple step by step process to assist the small business owner.

• Recordkeeping Unless you are a professional bookkeeper, you probably don't like to spend valuable business time keeping records. But keeping good records can actually help you save money.

Good records will help you monitor the progress of your business, prepare your financial statements, identify source of receipts, keep track of deductible expenses, prepare your tax returns, and support items reported on tax returns.

• What kinds of records should I keep? You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.

• How long should I keep records? The length of time you should keep a document depends on the action, expense, or event the document records. You must keep your records as long as they may be needed to prove the income or deductions on a tax return.

• How long should I keep employment tax records? You must keep all of your records as long as they may be needed; however, keep all records of employment taxes for at least four years.

• How should I record my business transactions? Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. These documents contain information you need to record in your books.

  • How should I record my business transactions?

A good recordkeeping system includes a summary of your business transactions. Business transactions are ordinarily summarized in books called journals and ledgers. You can buy them at your local stationery or office supply store. 

• A journal is a book where you record each business transaction shown on your supporting documents. You may have to keep separate journals for transactions that occur frequently.

• A ledger is a book that contains the totals from all of your journals. It is organized into different accounts. 

 

Whether you keep journals and ledgers and how you keep them depends on the type of business you are in. For example, a recordkeeping system for a small business might include the following items. 

• Business checkbook

• Daily summary of cash receipts

• Monthly summary of cash receipts

• Check disbursements journal

• Depreciation worksheet

• Employee compensation records

  • Note: The system you use to record business transactions will be more effective as you follow good recordkeeping practices. For example, record expenses when they occur, and identify the source of recorded receipts. Generally, it is best to record transactions on a daily basis. For additional information on how to record your business transactions, refer to Publication 583, Starting a Business and Keeping Records.

• What is the burden of proof? The responsibility to prove entries, deductions, and statements made on your tax returns is known as the burden of proof. You must be able to prove (substantiate) certain elements of expenses to deduct them.

 

• Business Name Change Explanation for businesses on how to make a name change.

• Businesses with Employees If you operate a business and have employees, this can seem to be a bit overwhelming until utilizing the proper payroll methods. We can assist you in finding the resources on hiring, recordkeeping and other topics such as employment taxes, and wage reporting requirements.

• As a business owner, when another person performs work for you, you must first correctly classify that person as an independent contractor or employee.

• If the person is an independent contractor, refer to Forms and Associated Taxes for Independent Contractors for your tax responsibilities.

• If the person is classified as an employee you must have an Employer Identification Number (EIN). Your tax responsibilities include withholding, depositing, reporting, and paying employment taxes. You must also give certain forms to your employees, they must give certain forms to you, and you must send certain forms to the IRS and SSA.

  • Hiring Employees

  • Part Time or Seasonal Help

  • Employee Benefits

  • Family Help

  • Employment Taxes

  • Husband and Wife Business

  • Members of the Clergy

  • Paying Yourself

  • Recordkeeping Requirements

• Paying Independent Contractors If you pay independent contractors, you may have to file Form 1099-MISC, Miscellaneous Income, to report payments for services performed for your trade or business.

• What is Taxable and Nontaxable Income? You can receive income in the form of money, property, or services. Listed below are the more common types of income.

Taxable Income

• Wages and salaries

• Tips and gratuities

• Unemployment benefits

• Canceled/forgiven debt

• Self-employment income

 

Non-Taxable Income

• Child support

• Insurance proceeds (accident, casualty, health, life)

• Meals and lodging for the convenience of employer

• Veterans’ benefits

• Aid to Families with Dependent Children (AFDC)

 

 

• Filing and Paying Your Business Taxes This section discusses business taxes you may have to pay and the forms you may have to file. It also discusses taxpayer identification numbers.

• E-File Form 940, 941 or 944 for Small Businesses Learn your options for e-filing form 940, 941 or 944.

• Business Expenses You can deduct the cost of operating your business. These costs are known as business expenses. These are costs you do not have to capitalize or include in the cost of goods sold.

• Business Tax Credits A list of forms for claiming business tax credits, and a brief explanation about when carryovers, and credits cease.