Employer Identification Number (EIN) or Federal Tax Identification Number: An EIN is used to identify a business entity and is a requirement on your income tax to identify your business. The EIN has other tax purposes depending on the transactions your business requires. It is important to ensure that your business legal structure (LLC, Corporation, Partnership, Sole Proprietorship, etc.) is identified properly and purposefully on your EIN.
Filing Obligations: Once your business starts operating, you are subject to tax obligations. Your business legal structure determines your tax obligations. Ensure you select the correct structure that works best for your business plans and avoid unnecessary double taxation. If you are a business owner registered as a sole proprietor, LLC, or partnership, you will report your income tax on your personal tax return. A corporation, however, is considered a separate tax entity. The corporation income the owner receives will be taxed independently. Consult a professional or do your research to analyze and forecast your tax liabilities.
Business Owner Self-Employed Tax: As an employee, your employer withholds taxes from your salary and pays it on your behalf. A self-employed business owner needs to withhold taxes from their income. Ensure to estimate your self-employed tax quarterly (four times per year) and pay them.
Sales Tax Collection: Depending on your business and the state in which it is located, you might need to collect sales tax. In some states, certain services require sales tax collection. Ensure you know your Sales Tax Collection obligations within your state(s) or country of operation. Arrange quarterly payments and ensure to do the proper accounting entries on your books.
Payroll Tax Payment: If you plan to hire employees or pay yourself, ensure you hire an expert to handle your payroll. Alternatively, you can find the best payroll system that works for your business. Whether you hire out or do it yourself, ensure you know your obligations and responsibilities. What percentage you need to withhold for Federal Income Tax (10%-37%), FICA Taxes: (Social Security Rate 12.4%), (Medicare Tax Rate 2.9%), is essential to payroll taxes. The rates mentioned above, unemployment and additional Medicare Tax vary depending on income and state and federal rules that may apply. Don’t forget to report your taxes on the appropriate forms (Forms 941 weekly or semi-weekly and 940 quarterly and annually).
Tax Deductions: Many of your business expenses are tax deductible. Startup businesses can deduct certain expenses, such as research expenses. However, to claim those expenses on your taxes, you need to track them. For your business expense tracking, the current technology is your best tool. Numerous apps can help you to keep your business expenses organized and well recorded. In a general sense and as per the IRS requirement, you should keep the following records:
- Bank and credit card statements
- Canceled checks
- Proof of payments
- Financial Statements
- Previous tax year returns
- W2 and 1099 forms
- All supporting documented evidence that proves income, deductions, or credit shown on tax return
Note: Keep in mind that record-keeping requirements will vary depending on the nature of the business.