Starting a business has its benefits such as becoming your boss, doing what you love and enjoying the profits of your sweat. But it also has its hurdles related to running and starting a business on your own. With Internal Revenue Service (IRS) you are guaranteed of less stress when filing and paying taxes. The start-ups costs involved in starting a business are deductible but not all at once. It is necessary that you find out whether your company needs to obtain a tax ID, the benefits and the requirements needed.
IRS insists that a taxpayer should determine whether the activity they are running is a business, profitable hobby or non-profitable organization. Any activity is regarded as a business if it is carried on with an expectation of earning a profit.
– You need to research if the activity you are engaging in qualifies as a business or a hobby. This will enable you to understand the tax advantages and requirements for each.
– All startup businesses must obtain their Federal Business Tax ID
– Each individual state and locality has its tax laws for business
– Knowing when the tax year starts for your business is quite important as it enables you meet the filing requirements.
For a start-up business, it is a requirement that you obtain your Federal Business Tax ID (Employer Identification Number). The EIN is used to identify your business entity. With the developing technology, you can apply for your EIN online and get it immediately. After correct filling of your details, you will receive your business ID via an email. EIN aids in the filing of taxes. You will require an EIN if your business employs workers, withholds taxes and if you operate the business as a partnership or corporation. If you operate under a sole proprietorship, you can obtain an EIN though it is not a requirement.
Your Federal Tax Obligations are about the type of business structure you are running. Before starting a business, you must know the type of business structure you want and understand the kind of tax obligation required of it. The federal government levies four types of business taxes;
– Income tax
– Self-employment tax
– Employers tax
– Excise taxes
You will need to pay state taxes that are in line with your state. Most regular state taxes you are required you pay are income and employment taxes. Income tax is levied differently from state to state. The type of business structure you run will determine the amount of income tax levied. Employment taxes are paid if you have employees in your business. It is important to consult your state to know the amount of taxes you are required to pay.
Punctuality is a necessity when it comes to paying taxes. Therefore, it is important that you know the different tax years. Two tax years are applicable in America;
– Calendar year- This comprises of 12 consecutive months beginning from January 1st and ending in December 31st.
– Fiscal year- it is 12 consecutive months ending on the last day of the month except December.
If you need to change a tax year, you must get IRS approval first. This is after filing the necessary forms, but you might be approved after which you can request a ruling for a fee. Paying taxes is crucial because it guarantees proper usage of money and good evaluation on profits.