Lesson 1Lesson 1

What You Need to Know About Federal Taxes and

Your New Business

Federal Employer Identification Number

(EIN)

Federal Employer Identification Number

(EIN)

• Pay wages to employees• Have a self-employed retirement plan• Operate your business as a corporation

or partnership• Are required to file any of these tax returns:

• Employment• Excise• Fiduciary• Alcohol, Tobacco, or Firearms

RecordkeepingRecordkeeping• You must keep:

• Receipts• Sales slips• Invoices• Bank deposit slips• Cancelled checks• Other documents to substantiate

• Income• Deductions• Credits

RecordkeepingRecordkeeping

• Prevent omission of deductible expenses• Establish earnings for self-employment

tax purposes• Explain items on your income tax return

RecordkeepingRecordkeeping

• Publication 583

Starting a

Business and

Keeping Records

RecordkeepingRecordkeeping

How long should records be kept?

• 3 years after the return is due or filed, or

• 2 years from the date the tax is paid, whichever is later

RecordkeepingRecordkeeping

Keep employment tax records

• Four years after the date on which the tax return becomes due, or the tax is paid, whichever is later.

RecordkeepingRecordkeeping

Publication 15 Employer’s

Tax Guide

Forms of Business OrganizationForms of Business Organization

• Sole Proprietorship

• Partnership

• Limited Liability Company

• S Corporation

• Corporation

Forms of Business OrganizationForms of Business Organization

Sole proprietorship• A sole proprietorship is an

unincorporated business that one person owns.

Advantages• The simplest type of business

organization

Disadvantages• Capital is limited to whatever the owner

generates.

Forms of Business OrganizationForms of Business Organization

Partnership• A partnership is a relationship between two or

more persons who join together to carry on a trade or business.

Advantages• Easy to organize• Can have greater financial strength than a sole

proprietorship• Combines managerial skills and judgment of the

partners• Each partner has a person interest in the

business

Forms of Business OrganizationForms of Business Organization

Partnership• A partnership is a relationship between

two or more persons who join together to carry on a trade or business.

Disadvantages• The liability of the partners is usually

unlimited• Decision authority is divided

Forms of Business OrganizationForms of Business Organization

Limited Liability Company• An LLC may be treated as a sole

proprietorship, a partnership, or a corporation.

Advantages• Owners have limited personal liability for the

debts and actions of the LLC• Management flexibility and the benefit of flow-

through taxation

Forms of Business OrganizationForms of Business Organization

Limited Liability Company

• If you have a business of two or more people, you’re automatically classified as a partnership for federal tax purposes.

• If you are a one person business, you’re automatically classified as a sole proprietor for federal tax purposes.

Forms of Business OrganizationForms of Business Organization

S Corporation• An S Corporation is a small business

corporation whose shareholders elect to have corporate income taxed like a partnership.

Forms of Business OrganizationForms of Business Organization

Corporation• The law treats a corporation as a legal entity.

Advantages• The life of the business is perpetual• The stockholders have limited liability• Transfer of ownership is easy• Easier to raise capital and to expand• Adaptable to both large and small businesses

Forms of Business OrganizationForms of Business Organization

Corporation Disadvantages• It is taxed twice• It may be more difficult and expensive

to organize

Forms of Business OrganizationForms of Business Organization

• Sole proprietorship• Partnership• Limited Liability Company• S Corporation• Corporation

Choosing a Paid PreparerChoosing a Paid Preparer

• Avoid preparers who claim they can obtain larger refunds than other preparers

• Avoid preparers who base their fee on the amount of your refund.

Choosing a Paid PreparerChoosing a Paid Preparer• Ask questions and get references• Find out the person’s credentials• Find out if the preparer is affiliated with a

professional organization• Never sign a blank return• Never sign a completed form without reviewing it

and making sure you understand the entries• Consider whether the preparer will be around

Tax evasion is punishable by up to five years imprisonment and a $250,000 fine.

Lessons for All Small Business Owners

Lessons for All Small Business Owners

• What you need to know about federal taxes and your new business

• How to set up and run your business so paying taxes isn’t a hassle

• How to file and pay your taxes using a computer

Lessons for Some Small Business Owners

Lessons for Some Small Business Owners

• What you need to know when you run your business out of your home

• How to set up a retirement plan for yourself and your employees

Lessons for EmployersLessons for Employers

• What you need to know about federal taxes when hiring employees or contractors

• How to manage your payroll so you withhold the right amount from your employees

Lessons for EmployersLessons for Employers

• How to make tax deposits and file your payroll taxes using a computer

• What you need to know about Federal Unemployment Taxes (FUTA)

www.irs.gov

Small Business/Self Employed Tax Center

Small Business/Self Employed Tax Center

IRS.gov screen shot

Questions?

Thank You!

Questions?

Thank You!