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 Four Things to Know about Taxes and Starting a Business

Choose a business structureWhen starting a business, an owner must decide what type of entity it will be. This type determines which tax forms a business needs to file. Owners can contact @getredeemednow for more info. The most common forms of businesses are:

  • Sole Proprietorships
  • Partnerships
  • Corporations
  • S Corporations
  • Limited Liability Company (entity recognized by state only)

Determine business tax responsibilitiesThe type of business someone operates determines what taxes they need to pay and how to pay them. There are the five general types of business taxes:

  • Income tax – All businesses except partnerships must file an annual income tax return. They must pay income tax as they earn or receive income during the year.
  • Estimated taxes – If the amount of income tax withheld from a taxpayer’s salary or pension is not enough, or if the taxpayer receives income such as interest, dividends, alimony, self-employment income, capital gains, prizes and awards, they may have to make estimated tax payments.
  • Self-employment tax – This is a Social Security and Medicare tax. It applies primarily to individuals who work for themselves.
  • Employment taxes – These are taxes an employer pays or sends to the IRS for its employees. These include unemployment tax, income tax withholding, Social Security, and Medicare taxes.
  • Excise tax – These taxes apply to businesses that:
    • Manufacture or sell certain products
    • Operate certain kinds of businesses
    • Use various kinds of equipment, facilities, or products
    • Receive payment for services

Choose a tax year accounting period Businesses typically figure their taxable income based on a tax year of 12 consecutive months. A tax year is an annual accounting period for keeping records and reporting income and expenses. The 2 options are:

  • Calendar year: Jan. 1 to Dec. 31.
  • Fiscal year: 12 consecutive months ending on the last day of any month except December.

Set up recordkeeping processes Being organized helps businesses owners be prepared for other tasks. Good recordkeeping helps a business monitor progress. It also helps prepare financial statements and tax returns. Contact @getredeemednow for record keeping tips!

#2 IRS Audits

Why am I being selected for an audit?

Selection for an audit does not always suggest there’s a problem. The IRS uses several different methods:

  • Random selection and computer screening – sometimes returns are selected based solely on a statistical formula. The IRS compares your tax return against “norms” for similar returns.
  • Related examinations – The IRS may select your returns when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.

*NOTE: NEVER EVER under-report income! This is the #1 reason for an audit!! Contact @getredeemednow to figure out how to save without underreporting income.

How am I notified?If your account is selected for audit, you will be notified by mail. An audit is never initiated by telephone.

What do I need to provide?

The IRS will provide you with a written request for the specific documents they want to see. Here is a list of records the IRS may request from you:
Receipts
Bills
Canceled checks
Legal papers
Loan agreements

 

  • Logs or diaries
  • Medical and Dental records
  • Theft or loss documents
  • Employment documents
  • Schedule K-1

 

IRS law requires you to keep all records you used to prepare your tax return – for at least three years from the date the tax return was filed.

How far back can the IRS go to audit my return?Generally, returns filed within the last three years. However it is possible to be audited for a return filed within the last six years if they find a substantial error.

How does the IRS conclude an audit?An audit can be concluded in three ways:

  • No change: an audit in which you have substantiated all of the items being reviewed and results in no changes.
  • Agreed: an audit where the IRS proposed changes and you understand and agree with the changes.
  • Disagreed: an audit where the IRS has proposed changes and you understand but disagree with the changes.

What happens when you agree with the audit findings?If you agree with the audit findings, you will be asked to sign the examination report or a similar form depending upon the type of audit conducted. If you owe money, there are several payment options available.

What happens when you disagree with the audit findings?Contact a Tax professional for assistance with your options, request a conference with an IRS manager, or you can file an appeal if there is enough time remaining under the statute of limitations.

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