First, congratulations on starting your new business! Starting a new business can be an exciting journey. There are many benefits to starting a business like “being your own boss,” having more control over your income and tremendous tax breaks. However, depending on how you form your business you will be subject to certain tax obligations. One of the first decisions to make when starting a business is what form of business entity to establish. Your form of business (e.g., sole proprietorship, partnership, LLC) determines which income tax return form you have to file.
Deciding on a Business Entity
The two simplest business entities are Sole Proprietor and a Limited Liability Corporation (LLC). A sole proprietor is the most basic and means you alone own the company and are responsible for its assets and liabilities. A LLC is a hybrid between a sole proprietorship and a corporation. So, as the owner or partner in an LLC, you are considered self-employed as you would be as a sole proprietor. In an LLC, the business itself is not taxed but its owners are. And like a corporation though, an LLC is protected from having personal assets pursued that are the result of business actions. It’s not recognized as its own entity like a Corporation is an entity however.
Both sole proprietors and LLC business entities taxes can be filed on their personal tax return form 1040 and Schedule C. The Schedule C shows profit and loss for a business. Each member in the LLC files their own tax forms. For a single owner, you’d file the same forms as a sole proprietor—form 1040 and Schedule C. In a partnership LLC, the partners would fill out form 1065. And should your LLC elect to go through the process to classify as a corporation, one form, 1120, would be filed for the corporation.
Determine Your Federal Tax Obligations
The federal government levies four basic types of business taxes:
* Income tax
* Self-employment tax
* Taxes for employers
* Excise taxes
To learn more about these taxes, visit the Internal Revenue Service’s (IRS) Guide to Business Taxes.
Federal Income Taxes
Select the form of your business below to find out which federal tax forms you need to file:
* Sole Proprietorship
* Partnership
* Corporation
* S Corporation
* Limited Liability Company (LLC)
State Income Taxes
Nearly every state levies a business or corporate income tax. Like federal taxes, your state tax requirement depends on the legal structure of your business. For example, if your business is an LLC, the LLC is taxed separately from the owners of the business, while sole proprietors report their personal and business income taxes using the same form used to report their business taxes. Consult the General Tax Information link on the State and Local Tax Guide for specific requirements.
This information can be found at sba.gov
Need Help Setting Up Your Business?
Our package includes:
* Business name verification
* Federal tax ID (EIN) obtainment
* Preparation & filing of all state documentation
* Business name & logo trademark
$199 includes state filing fees.
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