Tax Tip Number 2017-67: Four Things to Know about Taxes and Starting a Business

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IRS Tax Tips

October 30, 2017

Issue Number: Tax Tip Number 2017-67

Inside This Issue

Four Things to Know about Taxes and Starting a Business

New business owners have tax-related things to do before launching their companies. IRS.gov has resources to help. Here are some items to consider before scheduling a ribbon-cutting event.

Choose a business structure

When starting a business, an owner must decide what type of entity it will be. This type determines which tax forms a business needs to file. Owners can learn about business structures at IRS.gov. The most common forms of businesses are:

Determine business tax responsibilities

The type of business someone operates determines what taxes they need to pay and how to pay them. There are the five general types of business taxes.

Income tax – All businesses except partnerships must file an annual income tax return. They must pay income tax as they earn or receive income during the year.
Estimated taxes – If the amount of income tax withheld from a taxpayer’s salary or pension is not enough, or if the taxpayer receives income such as interest, dividends, alimony, self-employment income, capital gains, prizes and awards, they may have to make estimated tax payments.
Self-employment tax – This is a Social Security and Medicare tax. It applies primarily to individuals who work for themselves.
Employment taxes – These are taxes an employer pays or sends to the IRS for its employees. These include unemployment tax, income tax withholding, Social Security, and Medicare taxes.
Excise tax – These taxes apply to businesses that:

Manufacture or sell certain products
Operate certain kinds of businesses
Use various kinds of equipment, facilities, or products
Receive payment for services

Choose a tax year accounting period

Businesses typically figure their taxable income based on a tax year of 12 consecutive months. A tax year is an annual accounting period for keeping records and reporting income and expenses. The options are:

Calendar year: Jan. 1 to Dec. 31.
Fiscal year:12 consecutive months ending on the last day of any month except December.

Set up recordkeeping processes

Being organized helps businesses owners be prepared for other tasks. Good recordkeeping helps a business monitor progress. It also helps prepare financial statements and tax returns. See IRS.gov for recordkeeping tips.

Additional Resources:

Recommended reading for small businesses: Small Business Publications
Checklist for starting a business
Industries/professions webpage
For information on state requirements for starting and operating a business, refer to a state's website.

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Tax Tip Number 2017-67: Four Things to Know about Taxes and Starting a Business

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Issue Number: Tax Tip Number 2017-67

Inside This Issue