If you were one of thousands of Americans this year you have kicked your old JOB (just over broke) to the curb. You are stretching your wings and went into business for yourself. Whether you are working at home, or you have a place for an office, or retail store being your own boss is the American dream. That dream does come with a catch though, the IRS still needs their money, and the tax considerations must be carefully considered.
Many people fail to plan ahead for taxes, instead at the end of the year they are frantically scurrying around trying to find an accountant, and digging through boxes and credit card statements for business expenses. This is the wrong way to approach this subject. As we sit perched at the beginning of this year, it is a great time to consider the tax issues you will face at the end of the year. Plan for them now, and start seeking a good accountant to help you.
Failure to plan ahead, will greatly increase the chances of paying more in taxes than you would otherwise have to pay. Some planning and preparation can literally save thousands off your tax bill, which is a huge difference. Most new business owners make the mistake of worrying about taxes at the last minute. However, one of the first issues addressed should be your taxes.
The small business owner needs to decide if they need an EIN, or Employer Identification Number from the IRS. This number is what you would use to report earnings from employees that you employ at some point. If you think you will be hiring employees, then you should obtain one of these numbers from the IRS.
Other issues to consider, how will you track your sales, and expenses in the event that you need to prove these earnings or expenses to the IRS? Most people purchase a form of accounting software, however this too should be handled at the beginning of the year, or when you first open, instead of waiting until the end of the year to put this together.
Are you doing retail sales? If so, you also need to find a method of accounting and inventory that the IRS approves of to make things easiest. Typically, for inventories they want an opening inventory, as well as periodic inventories taken to ensure you are claiming the correct amount for income purposes. Aside from the IRS position on this, you must also remember, that most states also charge sales tax, so your state tax information is also something important.
Most states for sales tax require quarterly filings, where you are responsible for paying what is due for the previous three months. Speaking of quarterly filings, many times the IRS requires that payments be made periodically through the year if you are going to owe taxes or they will charge a penalty at the end of the year! Add on top of this the self-employment taxes that must be paid and you can see how devastating not planning for taxes can be.
You need to determine your plan for taxes as quickly as possible before opening so that you can prepare yourself as best as possible, remember do not leave tax issues to be determined until December of this year, that is far, far too late. Now is the time to get set up so you can successfully launch your business, as well as successfully keep as much of your money as possible.