What You Need to Know About Federal Taxes and Your New Business

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• What You Need to Know About Federal Taxes and
  Your New Business

Lesson 1
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Federal Employer Identification Number (EIN)

• Pay wages to employees
• Have a self-employed retirement plan
• Operate your business as a corporation or
  partnership
• Are required to file any of these tax returns
• Employment
• Excise
• Fiduciary
• Alcohol, Tobacco, or Firearms

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Recordkeeping

• You must keep
• Receipts
• Sales slips
• Invoices
• Bank deposit slips
• Cancelled checks
• Other documents to substantiate
• Income
• Deductions
• Credits

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Recordkeeping

• Prevent omission of deductible expenses
• Establish earnings for self-employment tax
  purposes
• Explain items on your income tax return

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Recordkeeping

• Publication 583
• Starting a
• Business and
• Keeping Records

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Recordkeeping

• How long should records be kept?
• 3 years after the return is due or filed, or
• 2 years from the date the tax is paid, whichever
  is later

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Recordkeeping

• Keep employment tax records
• Four years after the date on which the tax return
  becomes due, or the tax is paid, whichever
  is later.

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Recordkeeping

• Publication 15
• Employers
• Tax Guide

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Forms of Business Organization

• Sole Proprietorship
• Partnership
• Limited Liability Company
• S Corporation
• Corporation

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Forms of Business Organization

• Sole proprietorship
• A sole proprietorship is an unincorporated
  business that one person owns.
• Advantages
• The simplest type of business organization
• Disadvantages
• Capital is limited to whatever the owner
  generates.

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Forms of Business Organization

• Partnership
• A partnership is a relationship between two or
  more persons who join together to carry on a
  trade or business.
• Advantages
• Easy to organize
• Can have greater financial strength than a sole
  proprietorship
• Combines managerial skills and judgment of the
  partners
• Each partner has a person interest in the business

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Forms of Business Organization

• Partnership
• A partnership is a relationship between two or
  more persons who join together to carry on a
  trade or business.
• Disadvantages
• The liability of the partners is usually
  unlimited
• Decision authority is divided

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Forms of Business Organization

• Limited Liability Company
• An LLC may be treated as a sole proprietorship, a
  partnership, or a corporation.
• Advantages
• Owners have limited personal liability for the
  debts and actions of the LLC
• Management flexibility and the benefit of
  flow-through taxation

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Forms of Business Organization

• Limited Liability Company
• If you have a business of two or more people,
  youre automatically classified as a partnership
  for federal tax purposes.
• If you are a one person business, youre
  automatically classified as a sole proprietor for
  federal tax purposes.

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Forms of Business Organization

• S Corporation
• An S Corporation is a small business corporation
  whose shareholders elect to have corporate income
  taxed like a partnership.

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Forms of Business Organization

• Corporation
• The law treats a corporation as a legal entity.
• Advantages
• The life of the business is perpetual
• The stockholders have limited liability
• Transfer of ownership is easy
• Easier to raise capital and to expand
• Adaptable to both large and small businesses

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Forms of Business Organization

• Corporation Disadvantages
• It is taxed twice
• It may be more difficult and expensive to organize

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Forms of Business Organization

• Sole proprietorship
• Partnership
• Limited Liability Company
• S Corporation
• Corporation

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Choosing a Paid Preparer

• Avoid preparers who claim they can obtain larger
  refunds than other preparers
• Avoid preparers who base their fee on the amount
  of your refund.

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Choosing a Paid Preparer

• Ask questions and get references
• Find out the persons credentials
• Find out if the preparer is affiliated with a
  professional organization
• Never sign a blank return
• Never sign a completed form without reviewing it
  and making sure you understand the entries
• Consider whether the preparer will be around
• Tax evasion is punishable by up to five years
  imprisonment and a 250,000 fine.

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Lessons for All Small Business Owners

• What you need to know about federal taxes and
  your new business
• How to set up and run your business so paying
  taxes isnt a hassle
• How to file and pay your taxes using a computer

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Lessons for Some Small Business Owners

• What you need to know when you run your business
  out of your home
• How to set up a retirement plan for yourself and
  your employees

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Lessons for Employers

• What you need to know about federal taxes when
  hiring employees or contractors
• How to manage your payroll so you withhold the
  right amount from your employees

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Lessons for Employers

• How to make tax deposits and file your payroll
  taxes using a computer
• What you need to know about Federal Unemployment
  Taxes (FUTA)

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www.irs.gov
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Small Business/Self Employed Tax Center
IRS.gov screen shot
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Questions? Thank You!