| Starting a business? As a new business owner; it is | | | | file tax returns, failure to pay taxes, for tax evasion, |
| essential to learn federal tax responsibilities and | | | | making a false statement, failure to supply tax id |
| keeping records to assist in basic start-up business | | | | numbers of payees. |
| decisions and in how to conduct business. | | | | Business Expenses: necessary and ordinary expenses |
| Basic federal tax responsibilities to consider before | | | | incurred in business transactions are deductible. There |
| starting a business: | | | | are rules to follow in certain allowable deductions. |
| Determine the business structure-sole proprietor, | | | | Business Start-Up cost could be deducted or |
| corporation, LLC, Partnership. Register the business. If | | | | capitalizedamortized. Please see Publication 535 for |
| hiring employees; contact Social Security | | | | details. |
| Administration-Form SS-4 to issue an Employer | | | | Depreciation: an allowable deduction for property |
| Identification Number -EIN#. Corporations, LLCs, | | | | acquired with a substantial life of 1+ year. Sec 179 is a |
| partnerships will need an EIN# . E IN# is used to identify | | | | provision to declare a one-time total deduction of |
| tax accounts of employers. Sole proprietors may use | | | | property purchased. |
| the social security number. | | | | Business Use of Home: the business part of your |
| Business transactions require collecting payee's | | | | home must be the exclusive principal place of |
| information using form W-9 and report payments to | | | | business. The exclusive use exception does not apply |
| non-employees on an "information return". | | | | if you use the part of the home for the storage of |
| Adopt a tax year: when you file the first income tax | | | | inventory or product samples and for a daycare |
| return you adopt a tax year. Changes to the adopted | | | | facility. The purpose and the time spend in the part of |
| tax year can only be done with IRS approval by filing | | | | home is important for some businesses. |
| Form 1128. There may be a fee. | | | | Car-Truck Expenses or the Standard Mileage rate: |
| Calendar -January 1 through December 31 due by April | | | | make an election upon filing the first income tax return. |
| 15th | | | | Thereafter the law was amended and taxpayer may |
| Fiscal - 12 consecutive months ending in any month | | | | use interchangeably. Good recordkeeping of mileage |
| other than December due the 15th day of the 4th | | | | logs is essential to be able to make this determination |
| month after the end of the fiscal year. | | | | at the end of the year. |
| Adopt an "accounting method": when you file the first | | | | Recordkeeping: capable of summary accounts such |
| income tax return you adopt an accounting method | | | | as ledgers and journals. Choose any recordkeeping |
| and thereafter changes need IRS approval. Choose an | | | | system suited to the business as long as it clearly |
| accounting method with a set of rules to determine | | | | shows income and expenses. For some, a "business |
| when and how income and expenses are reported. | | | | checkbook" is the main source for entries in the |
| *Cash method = income is reported in the tax year is | | | | business book. It is important to keep receipts as |
| received and deduct or capitalize expenses in the tax | | | | supporting document for the entries. |
| year paid. | | | | TIP: establish an accounting system that will grow with |
| *Accrual method = generally income is reported in the | | | | the business. Set up Chart of Accounts, |
| tax year is earned though paid in a later year. | | | | Recordkeeping system that follows retention guidelines |
| Deductions and capitalization of expenses are accrued | | | | as provided by federal law with accounting principles. |
| in the year incurred whether or not payment is | | | | Reconciliation of checkingcash accounts. Double-Entry |
| received. | | | | bookkeeping system. |
| TIP: An accounting method must treat income and | | | | Good records allow monitoring progress of the |
| expenses consistently year after year. It is important | | | | business with accurate income and expenses and a |
| to establish consistency and suitable accounting | | | | balance sheet contrasting assets liabilities and equity on |
| principles. When running more than one business you | | | | a given date. It allows you to identify source of |
| may use a different accounting method and different | | | | receipts, separate business and non-business, taxable |
| tax year for each entity. Keep separate and complete | | | | from non-taxable income. Keep track of deductible |
| set of books for each business. | | | | expenses. Good records facilitate the filing of the |
| Business Taxes: The business structure determines | | | | return in tax season. |
| which taxes apply. There are four kind of general | | | | IRS publication 583 pg 11 states: 'Good records can |
| business taxes: income, self-employment, employ and | | | | increase the likelihood of business success". |
| excise taxes. The law provides penalties for failure to | | | | Source: IRS. |