What People Need to Know When Starting a Business

An article recently posted by the Internal Revenue Service was released containing the following information. The original article may be found here.

The IRS knows that understanding and meeting tax obligations is vital to the success of all businesses, especially a new one. IRS.gov has the resources and information to help people through the process of starting a new business.

Here are some tips for new entrepreneurs.

Choose a business structure

The form of business determines which income tax return a business taxpayer needs to file. The most common business structures are:

Sole proprietorship: An unincorporated business owned by an individual. There's no distinction between the taxpayer and their business.
Partnership: An unincorporated business with ownership shared between two or more people.
Corporation: Also known as a C corporation. It's a separate entity owned by shareholders.
S corporation: A corporation that elects to pass corporate income, losses, deductions and credits through to the shareholders.
Limited Liability Company: A business structure allowed by state statute.

Choose a tax year

A tax year is an annual accounting period for keeping records and reporting income and expenses. A new business owner must choose either:

Calendar year: 12 consecutive months beginning January 1 and ending December 31.
Fiscal year: 12 consecutive months ending on the last day of any month except December.

Apply for an Employer Identification Number (EIN)

An EIN is also called a Federal Tax Identification Number. It's used to identify a business. Most businesses need one of these numbers even if they don’t have employees.

It's important for a business with an EIN to keep the business mailing address, location and responsible party up to date. IRS regulations require EIN holders to report changes in the responsible party within 60 days. They do this by completing Form 8822-B, Change of Address or Responsible Party and mailing it to the address on the form.