Starting a new business is an exciting venture that comes with a variety of responsibilities—one of the most important being proper tax reporting. This guide is designed to help new business owners understand the different types of taxes they may face, how to stay compliant, and where to find essential resources. Whether you’re just starting out or looking to refine your tax processes, this guide will help keep your business on track.
1. Reporting Your Taxes
Understanding your tax responsibilities is crucial for the long-term success of your business. Below are the key tax areas you need to know about:
Federal Income Tax
For Corporations and Certain LLCs:
If your business is a corporation or a limited liability company (LLC) that is structured as a corporation, your business must make quarterly estimated tax payments. These payments apply to the business’s corporate FTB Form 100 and IRS Form 1120. For additional details, refer to IRS Publication 542, Corporations.
For Sole Proprietorships, Partnerships, and S Corporations:
If your business is operated as a sole proprietorship, or if you have net profit reported on your individual income tax return from a partnership or S corporation, you pay your federal income tax liability via quarterly estimated tax payments. These payments are reported on your individual income tax returns (FTB Form 540 and IRS Form 1040). For more information about estimated taxes, see IRS Publication 505, Tax Withholding and Estimated Tax.
Self-Employment Tax
Self-employment tax covers Social Security and Medicare taxes for individuals who are self-employed. This tax applies if you are a sole proprietor with a net profit of $400 or more during the year, or if you earn $400 or more from a partnership or an LLC treated as a partnership.
For more details and guidance, visit the Self Employed Individual Tax Center.
Federal Payroll Taxes
If your business hires employees, you are responsible for withholding federal income tax, Social Security, and Medicare taxes from their wages. In addition, employers must pay a matching amount for Social Security and Medicare taxes.
For comprehensive information on your obligations as an employer, see Section 9, Withholding from Employee’s Wages, in IRS Publication 15, Employer’s Tax Guide. This guide explains the requirements for withholding, depositing, reporting, and paying federal employment taxes. For further details, refer to Publication 15-A, Employer’s Supplemental Tax Guide.
2. Employee Documentation
When you hire employees, proper documentation is key to maintaining compliance with federal regulations. Make sure your new hires complete the following forms:
Note: While the links for these forms aren’t provided in the original text, they are typically available on the official U.S. Citizenship and Immigration Services (USCIS) and IRS websites.
3. Establishing Your Tax Year
Your business must determine a tax year, which is an annual accounting period for reporting income and expenses. An established tax year is essential for accurately figuring your taxable income. Remember, a tax year is different from a short tax year.
Learn more about establishing your tax year on the IRS Tax Years page.
4. Federal Licenses and Permits
Depending on your industry and location, your business may require federal licenses and permits. Compliance in this area is essential for legal operation and can help avoid costly penalties.
For further guidance, check out the SBA’s Business Guide to Apply for Federal Licenses and Permits.
5. TIN (Employee) Verification Tool
Accurate recordkeeping includes verifying the taxpayer identification numbers (TINs) of your employees. The IRS provides tools to ensure that the TINs you have on file are correct.
Access the TIN Matching Tools for more information.
6. IRS Small Business and Self-Employed Tax Center
For a one-stop resource tailored to taxpayers filing Form 1040 or 1040-SR, Schedules C, E, F, or Form 2106—and for small businesses with assets under $10 million—the IRS offers a dedicated tax center. This hub provides detailed guidance on a wide range of topics, including:
Resources for Filing Taxes
- Standard Mileage Rates
- Business Tax Account
- Forms and Publications
- Self-Employment Taxes
- E-file Employment Taxes
Information for Various Taxpayers
- Self-Employed Individuals
- Independent Contractors or Employees
- Business Structures
- Businesses with Employees
- Industries/Professions
Preparing Your Taxes
Filing and Paying Your Taxes
- Filing and Paying Your Business Taxes
- IRS Tax Calendar for Businesses and Self-Employed
- Filing Past Due Tax Returns
- Information Return Reporting
Visit the IRS Small Business and Self-employed Tax Center to explore these resources in depth.
Conclusion
Navigating the tax landscape can seem daunting, but being informed is the first step toward maintaining compliance and setting your business up for success. By understanding the nuances of federal income tax, self-employment tax, federal payroll taxes, and other critical areas, you can focus on growing your business while staying compliant with all tax obligations.
Keep this guide as a reference as you embark on your entrepreneurial journey, and be sure to consult the linked resources for the most current and detailed information. For personalized advice tailored to your unique situation, consider consulting with a tax professional.
This resource is intended to provide a comprehensive overview of tax reporting responsibilities for new business owners. For more detailed and personalized advice, please refer to the official IRS and SBA websites or speak with a professional tax advisor.