Tax Tips for Small Business Owners
The type of small business you own and operate determines what taxes you must pay the IRS and how you pay them.
The four general types of taxes that would apply to a small business are income tax, self-employment tax, employment tax and Federal excise tax.
An Employer Identification Number provided by the Internal Revenue Service is used to identify a business entity.
Keeping accurate records of income and expenses will help you ensure successful operation of your new business.
You may choose any record keeping system you find suited to your business that clearly states your income and expenses.
In most cases, the Federal tax law does not require any special kind of records. However, the business you own affects the
type of tax records you need to keep for federal tax purposes.
Every business business owner subject to Federal income taxes must figure taxable income on an annual accounting period called a tax year.
The calendar year and the fiscal year are the most common tax years used.
Every small business owner must also use a consistent accounting method, which consists of a set of guidelines for determining when to report income and expenses.
The most commonly used small business accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax
year you receive it and deduct expenses in the tax year you pay them. Under the accrual method, you generally report income in the tax year you earn it and deduct
expenses in the tax year you incur them.
More valuable tips and information on taxes and record keeping for small business owners can be found on the business section of the IRS website www.IRS.gov.