Those who plan to start a new business should be aware of their federal tax responsibilities to ensure timely and correct payment of taxes. When starting a business, the tax duties are based on the type of business they have started to ensure a correct filing of taxes. The most common types of businesses are:
- Sole Proprietorship
- S Corporation
- Limited Liability Company
For each of these types of businesses, taxpayers need to pay taxes using different federal tax forms. The four general kinds of business taxes are:
- Income Tax
- Self-Employment Tax
- Employment Tax
- Excise Tax
It is important to file tax returns accurately to avoid any underpayments or overpayments. There are many tax credits available to businesses that they can use to reduce their tax liability. As most businesses need an Employer Identification Number (EIN), a new business owner may check whether the type of business being run requires an EIN or not. Taxpayers may apply for an EIN online.
Those who have started a business for the first time must ensure that their financial records are correct and up-to-date. They must keep receipts of expenditures that are tax deductible to be able to report them on their tax return.
The IRS has tax centers listed on its website with information about the tax requirements of the various kinds of businesses. Businesses with assets of $10 million or less are considered small businesses, while those with assets of $10 million or more are considered large businesses by the IRS.
Understanding the tax benefits and liabilities can save taxpayers from erroneous tax return filings that many times lead to a tax debt.