One of the easiest ways to prevent excess spending when starting a business is by making informed tax decisions. The first step is determining where in the US you’re starting the company — different states have various tax rules for startups.
Founders must also choose how they want to structure the business. That factor dictates the income tax return a business taxpayer must file. The most common structures are sole proprietorship, partnership, corporation, S corporation, and a limited liability company, according to the IRS.
The next step is picking a tax year, which is the annual accounting period for reporting income, expenses, and keeping records. There are two options: A calendar year, which runs from January 1 to December 31, and a fiscal year, which ends on the last day of any month except for December.
Paperwork is also vital. Entrepreneurs should apply for an employer identification number (also known as an EIN) — most businesses need an EIN, according to the IRS. Meanwhile, founders should ensure that the company’s mailing address, location, and responsible party are up to date.
They should also have employees fill out important documents like form I-9 — which identifies an employee’s identity and work authorization — and the employee’s withholding certificate W-4.
Lastly, don’t forget to pay your taxes. There are 5 general types of business taxes that entrepreneurs must pay, including income tax, estimated taxes, self-employment tax, employment tax, and excise tax. To determine what you owe, founders must look at their employees, business structure, and goods or services. Consult a tax specialist or the IRS website if you’re unsure.