What You Need to Know
About Federal Taxes and
Your New Business
Lesson 1
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:
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Employment
Excise
Fiduciary
Alcohol, Tobacco, or Firearms
Recordkeeping
• You must keep:
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Receipts
Sales slips
Invoices
Bank deposit slips
Cancelled checks
Other documents to substantiate
• Income
• Deductions
• Credits
Recordkeeping
• Prevent omission of deductible expenses
• Establish earnings for self-employment
tax purposes
• Explain items on your income tax return
Recordkeeping
• Publication 583
Starting a
Business and
Keeping Records
Recordkeeping
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
Recordkeeping
Keep employment tax records
• Four years after the date on which
the tax return becomes due, or
the tax is paid, whichever is later.
Recordkeeping
Publication 15
Employer’s
Tax Guide
Forms of Business Organization
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Sole Proprietorship
Partnership
Limited Liability Company
S Corporation
Corporation
Forms 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 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 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 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 flowthrough taxation
Forms 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 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 Organization
Corporation
• The law treats a corporation as a legal entity.
Advantages
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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 Organization
Corporation Disadvantages
• It is taxed twice
• It may be more difficult and expensive
to organize
Forms of Business Organization
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Sole proprietorship
Partnership
Limited Liability Company
S Corporation
Corporation
Choosing 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 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
• 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
• 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 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 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
IRS.gov screen shot
Questions?
Thank You!