What Tax Issues Should I Consider When Starting a Business?
Understand how your business’s legal structure affects taxes—and other tax planning issues
By Super Lawyers staff | Reviewed by Canaan Suitt, J.D. | Last updated on August 1, 2024Use these links to jump to different sections:
- 1. Select the Right Business Structure
- 2. Make a Checklist of Business Taxes and Related Costs
- 3. With Business Tax Planning, Timing Matters
- 4. Create a Plan for Getting Taxes Paid
- 5. Consult with an Attorney for Help
For entrepreneurs and small business owners, the importance of tax planning cannot be overstated. A comprehensive plan can go a long way towards helping to keep your business on stable financial footing. Businesses must comply with both federal and state tax regulations.
Here are five business tax planning tips to help you get started:
1. Select the Right Business Structure
Business tax planning begins before a company is formed. It is imperative that taxpayers select the proper legal structure for their business since different business structures are taxed differently.
It may be best to operate your company as a sole proprietorship or other pass-through entity, such as a partnership or limited liability company (LLC). These business structures aren’t taxed at the corporate level; instead, profits are “passed through” the business to the owner(s) and appear on their individual tax returns. Alternatively, your company might work better as a C-corporation, where the business is taxed at the corporate level, and any dividends are also taxed as personal income.
What form works best depends on your finances, the nature of your business operations, and your long-term objectives—all of which a business tax professional can help you understand and strategize.
2. Make a Checklist of Business Taxes and Related Costs
To help with tax planning, it is useful to take a comprehensive inventory of exactly what the company might owe in a given year. Indeed, entrepreneurs and small business owners can benefit from creating a checklist as part of the tax planning strategies for all possible taxes. Among other things, this may include:
- Business income taxes;
- State taxes;
- Local taxes;
- Employment taxes, including self-employment costs; and
- Business licensing and permitting fees.
With a detailed checklist of likely taxes and costs, you can get a better idea of what your company might owe to the Internal Revenue Service (IRS), your state’s tax agency, or other government entities.
3. With Business Tax Planning, Timing Matters
One of the most important things that business owners should know about tax planning is that timing is everything.
Depending on the specific financial circumstances of your business, it may be a sensible strategy to defer revenue until the next tax year or accelerate expenses into this tax year. A tax professional can help you with tax preparation and understand the benefits and drawbacks of deferring revenue and/or accelerating expenses.
4. Create a Plan for Getting Taxes Paid
Business taxes are a significant expense, and even more so if you suddenly find out that your company owes a lot of money.
Businesses should create a thorough plan for satisfying their tax obligations. By doing so, they can better protect themselves from unwelcome surprise bills or major disruptions in tax flow. Be sure to estimate the amount of tax your company will need to pay over the course of a given year and put money aside, potentially even making estimated tax payments to the IRS.
5. Consult with an Attorney for Help
Small business tax planning is complicated. You do not want to leave tax deductions or tax benefits on the table—or worse, face sanctions or enforcement action over tax liabilities—because of a relatively minor error in your tax filings. Professional guidance is available.
Visit the Super Lawyers directory to find an experienced tax attorney in your area. For more information on this legal area, including filing income tax returns and federal income tax credits, see our tax law overview and related content.
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Enter your location below to get connected with a qualified attorney today.Additional Business Taxes articles
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