Those in the process of forming a business in North Carolina should be aware of their federal tax responsibilities. While establishing a business is not as simple as hanging out a shingle, the IRS offers a few tax tips to make it easier for people to begin.
The first step is to determine the type of business entity to establish. There are five basic types of business formations: S corporation, corporation, sole proprietorship, Limited Liability Company and partnership. The type of federal tax form a business uses to report its activity depends upon the type of business entity it is. A business is required to pay a variety of taxes, including self-employment, income, excise and employment taxes. In addition, certain types of business formations require an Employer Identification Number, or EIN, which will go on all federal tax correspondence for the business.
Keeping accurate records is important, and many business owners purchase software and other tools to help. Proper recording of deductibles and other important items will help support the information presented on the business’s tax returns. In addition, it is important to have a clear view of income and expenses for tax purposes as well as to monitor the business’s progress. A business must also be consistent with its accounting records each year.
Starting up a business can be a daunting task; however, with the right tools, it can be a rewarding adventure. A business and commercial law attorney may be able to provide invaluable advice regarding business formation and compliance. A knowledgeable legal professional may be able to guide business owners in the right direction and offer them insight that would not have been able to obtain on their own as well as assist with compiling and drafting agreements and other important documents.
Source: Exponent Telegram, “IRS: Tax tips if you’re starting a business“, July 03, 2013