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Tax primer for new businesses
Dear Small Biz Adviser:
I started a small business last year and am a bit in the dark about
paying the taxes due and when they are due. Where can I get a publication
that tells me what is due, as well as when and where to file my
taxes?
James
Dear James:
Without details on the legal structure or nature of your business,
let me elaborate on several tax categories, so you can decide which
applies to your specific needs.
Of course, there are the famous federal income taxes.
The Internal
Revenue Service Web site has a wealth of information, including:
- Begin your orientation with Publication
583, which lists all the records you need to maintain. It
also addresses issues important to your legal
business structure.
- If you are a sole proprietor, proceed immediately
to Publication
334. It is an excellent guide for filing income taxes, and
even includes sample filings for Schedule
C and Schedule C-EZ.
- Form
1120 and Form
1120S are the standard forms for C and S corporations respectively.
Naturally, you will want to read the instructions for 1120
or 1120S
before attempting to fill in the forms.
- Form
940, 940-EZ
or 941
are associated with Federal Unemployment Tax Allowance payments.
The form you file and its deadline depends on whether you pay
this tax at the end of the year or at the end of each quarter.
It is also required for Social Security and Medicare withholdings.
- Form
945 is used to report all income tax withheld for non-payroll
items, including backup withholdings, withholdings on pensions,
IRAs and annuities.
- Self-employment taxes associated with Social Security
and Medicare must also be addressed. You are now paying both portions
of the withholdings for yourself. You'll now need to make estimated
tax payments, either quarterly or at the end of the year.
I strongly urge that you discipline yourself to make quarterly
payments. The greater your net income at the end of the year,
the greater will be the withholdings to be paid.
- And be sure to review Publication
509, which provides the tax calendar for individuals and companies
for the tax year.
I cannot sufficiently emphasize the need to examine
these publications and forms in detail. It is likely you will need
other forms to supplement those listed above. For example, corporate
income-tax filings may require numerous additional forms and schedules
associated with capital gains and losses, foreign income, foreign
operations and more.
Don't overlook state, local
obligations
Now to the matter of state income taxes. If you are a sole proprietor
and only sell services, then there will be no income taxes in some
states. That is not so in many others.
Bankrate.com's state
tax roundup provides data on each state and the District of
Columbia. At the bottom of each state's page, you'll find a link
to that state's tax and revenue department, where you can find state
tax requirements and forms.
Finally, there are cities in which income taxes are
due. Contact the administration of your city to learn more.
In conclusion, we have barely scratched the surface.
I strongly encourage you to spend time examining the IRS Web site,
especially its page devoted to small
businesses.
You may also want to go to the local IRS office to
gather forms and publications that you didn't download from the
Internet. And the IRS provides periodic workshops for small businesses.
The schedule should be available at their local offices.
I hope this has given you a good beginning. I wish
you well.
-- Updated Aug. 18, 2004
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