The Internal Revenue Service today offered helpful information to entrepreneurs in anticipation of the upcoming kick-off of National Small Business Week, celebrating and recognizing the crucial contributions America’s small businesses make to the nation’s economy.
Each year, the U.S. Small Business Administration spearheads National Small Business Week, helping entrepreneurs with resources, benefits and other important business startup information that small business owners can use to launch their enterprises. This year’s celebration — Building on America’s Small Business Boom — runs from April 28 through May 4.
The Internal Revenue Service is a partner in the National Small Business Week celebration, and this year the IRS will be showcasing numerous resources to help small business entrepreneurs learn and understand their tax responsibilities and benefits. Throughout the week, IRS will be publishing helpful information in its popular tax tips e-News publications, as well as on IRS social media platforms including Facebook, X (formerly Twitter), LinkedIn and Instagram.
Next week, the IRS will share several important tax topics to help small business entrepreneurs prosper and grow:
- Monday, April 29. Best practices for small businesses — The IRS strongly encourages small business entrepreneurs to take advantage of the numerous resources available on IRS.gov. Knowing how to start a business and understanding best practices are essential for the success of small businesses.
- Tuesday, April 30. What to know when starting a business — Gain insights into key factors to consider when launching a new business venture. Access the Starting a business webpage to ensure a strong foundation for an entrepreneurial journey.
- Wednesday, May 1. Beware of scams — The IRS Dirty Dozen and more. Most cyberattacks are aimed at small businesses with fewer than 100 employees. Small business owners must implement data protection safeguards and always be on the lookout for tax-related scams.
- Thursday, May 2. Tips for tax pros who support small businesses — Stay informed with the latest IRS updates and access resources tailored for tax professionals.
- Friday, May 3. Expect the unexpected — The IRS can help small businesses after a disaster. A critical focus of the IRS is to relieve the federal tax burden of taxpayers who have been impacted by federally declared disasters. The IRS works with various agencies to provide assistance and coordinate disaster relief.
Seeking to start a small business involves several important considerations related to tax issues:
How to get an employer identification number
Most business owners need an employer identification number (EIN), a permanent form of identification that, in many cases, must be used for filing a tax return and can be used for various business needs such as opening bank accounts. Businesses can get an EIN online immediately at IRS.gov, and it’s free.
Choosing a business structure
Small business owners, as taxpayers, must decide on what the most appropriate business structure should be for their enterprise when they start their new business. The business structure they choose dictates the type of income tax return form that the business owner will file each year. Some common business structures include:
- Sole proprietorship. Individuals who own unincorporated businesses exclusively, by and for themselves are sole proprietors.
- Partnerships. A partnership is the relationship between two or more people to conduct trade or business, with each person contributing money, property, labor or skill and sharing in the profits and losses of the business.
- Corporations. In a corporation, prospective shareholders exchange money, property or both in order to acquire the corporation’s capital stock.
- S corporations. An S corporation is a corporation that elects to pass corporate income, losses, deductions and credits to its shareholders for federal tax purposes.
- Limited liability company (LLC). An LLC may be treated as a corporation, a partnership or as part of the owner’s tax return (e.g., sole proprietorship), depending on elections made by the LLC and its members. LLCs may also be subject to state regulations, which vary from state to state.
Understanding business taxes
Federal law requires all individuals, including small business owners, to pay taxes on all income earned. This typically involves making quarterly estimated tax payments for small business owners and self-employed individuals. How business taxes are paid depends on the business structure that an entrepreneur has chosen. The following are the four generally recognized business tax types:
- Income tax. With the exception of partnerships, all businesses must file an annual federal income tax return; partnerships must file an information return.
- Self-employment tax. A Social Security and Medicare tax primarily for individuals who work for themselves. Tax payments contribute to the individual’s Social Security system coverage.
- Employment tax. Small businesses with employees have certain employment tax responsibilities that must be paid, along with specific forms that must be filed.
- Excise tax. Imposed on various goods, services and activities, excise taxes may be imposed on a manufacturer, retailer or consumer, depending on the specific tax.
Choosing a “tax year”
A “tax year” is an accounting period for reporting income and expenses. Small businesses can choose which tax year works best for their operational needs:
- Calendar year. Twelve consecutive months beginning January 1 and ending December 31.
- Fiscal year. Twelve consecutive months ending on the last day of any month except December. A 52- to 53-week tax year is a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month.
Be a responsible recordkeeper
Maintaining well-organized business records not only helps in tax return preparation, but also assists small business owners in preparing financial statements, identifying income sources, tracking deductible expenses and monitoring their business progress. Small business owners should retain their business records for at least three years.
More small business information
- Small Business and Self-Employed Tax Center
- 10 steps to start your business
- Hobby or business? IRS offers tips to decide
- Industries, professions and business tax centers
Finally, for more information on a broader range of topics and answers to small business tax questions, visit the IRS website at IRS.gov.