Top 9 Things You Need to Know About the IRS as a Small Business Owner.

As a small business owner, taxes can be overwhelming. But fear not! Knowing a few key things about the IRS will make tax season a breeze and keep you in the good books with the taxman. Here are the top 9 things you need to know:

1. Separate Accounts: This is not just good practice; it’s required. The IRS doesn’t like mixing personal and business finances. Having business accounts (checking, savings, credit card) simplifies recordkeeping and reduces errors during tax time. This separation also protects your personal assets in case of a business lawsuit.

 2. Employer Identification Number (EIN): This is your business’s social security number. You’ll need an EIN to open a business bank account, file taxes, hire employees, and apply for business licenses. The good news? Getting an EIN is free and easy – you can apply online at https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online in minutes.

 3. Business Structure: Choosing the proper structure – sole proprietorship, partnership, LLC, or corporation – affects how you file taxes and your liability. Here’s a quick rundown:

               Sole Proprietorship: The simplest structure, but you and your business are one legal entity. This means your personal assets are at risk if the business is sued.

               Partnership: This is similar to a sole proprietorship but with multiple owners. Profits and losses are shared according to the partnership agreement. Again, personal assets are on the line.

               Limited Liability Company (LLC): Offers some liability protection, separating your personal assets from business debts. Requires filing formation documents with your state.

              Corporation: Most complex structures are treated as separate legal entities from their owners. Corporations offer the most liability protection but come with additional filing requirements and formalities.

             According to the U.S. Small Business Administration (SBA), over 80% of businesses in the US are sole proprietorships. While this structure is simple, consider consulting a tax professional to determine if an LLC or corporation better fits your business as it grows.

 4. Recordkeeping is king: The IRS loves organized businesses! Keep track of all your income and expenses. Receipts, invoices, bank statements, canceled checks, and mileage logs are key to accurate tax filing and potential audits. The IRS recommends electronic recordkeeping using accounting software or cloud storage for easy access and organization.

 5. Estimated Taxes: Don’t wait until April 15th! Most small businesses need to pay estimated taxes quarterly throughout the year (typically April 15th, June 15th, September 15th, and January 15th of the following year). This helps avoid a big tax bill and potential penalties at the end of the year. The IRS website (https://www.irs.gov/payments) has a tax calculator and resources to help you through the process.

 6. Business Deductions are Your BFF: Knowing what business expenses are tax deductible can save you a ton of money. Here are some common ones:

                 Office expenses: Rent, utilities, furniture, equipment (computers, printers)

                 Business supplies: Office supplies, marketing materials, inventory  

                 Professional fees: Accounting, legal, consulting fees

                 Travel expenses: Business-related travel costs (flights, hotels, meals) with                    

                                              proper documentation

Did You Know? The IRS has Publication 946, a tax guide for business owners. It covers common business deductions and recordkeeping and tax filing requirements. You can get Publication 946 for free on the IRS website (https://www.irs.gov/forms-instructions-and-publications?page=1).

 7. Tax Filing Deadlines: Don’t miss the boat! Federal tax filing deadlines are usually March 15th for businesses (April 15th for individuals). But you can get an extension if needed. Make sure you know federal and state filing deadlines to avoid penalties. The IRS website has a calendar of all tax deadlines (https://www.irs.gov/filing/individuals/when-to-file).

 8.  Tax Professionals: Worth Their Weight in Gold: Consider hiring a tax professional, especially in your first few years of business. They can be worth their weight in gold for:

• Choosing the right business structure

• Navigating the tax code

• Make sure you’re taking all the deductions and credits you can

Representing you in case of an audit

     The National Association for the Self-Employed (NASE) found that 72% of small business owners felt more confident filing their taxes after working with a tax professional. They cost money, but the peace of mind and potential savings can be worth it.

 9. The IRS Website: Your Tax Heaven: The IRS website is a goldmine of information for small businesses. It has:

               - Tax forms and instructions for federal and state filing

               -  Publications that explain tax rules, deductions, and credits in plain English

               - Online tools like tax calculators and estimated tax payment options

               - FAQs to answer your tax questions

             Pay your taxes on time! Late payments and penalties can quickly eat into your business profits. The IRS website (https://www.irs.gov/payments) has multiple payment options.

Stay informed and you’ll be ready for tax season and your small business will be IRS-compliant. Remember, the IRS is there to help, not hinder. Use their resources, ask questions, and hire a tax professional if needed. With a bit of planning and knowledge, you can navigate the tax world and keep your business thriving!