Knowing These I.R.S. Tax Rules Can Keep Your Small Business Out of Trouble
Many small business owners start up without first learning what the tax requirements
are for their business. They later become confused with the massive rules, and
discover they are entirely dependent on their tax adviser for help. They put
themselves in a position that prevents them from checking and verifying their own
taxes, because they have not educated themselves about the simplest tax rules.
It is necessary to have a trusted tax adviser, but you are ultimately responsible
for filing and paying the correct taxes. Because of this, you should know what you
have to file and what you have to pay, by studying the tax rules and regulations.
There were several media stars who were recently profiled on a documentary for not
paying their taxes. They either ended up in jail or having most of their assets
taken by the Internal Revenue Service. All of them said they took advice given to
them by their advisers. So, how do you verify that your adviser is telling you the
truth, and filing your taxes correctly. First, check their credentials to verify
they are in some way licensed to do taxes and give qualified tax advice. Second, you
can verify what their telling you are facts by going to the Internal Revenue
United States tax laws, rules and other tax information is included in forms,
publications and descriptions on the IRS website, so there is no excuse for
turning in incorrect returns or taking unlawful deductions.
If you are a small business, understanding basic tax requirements can save you
massive future losses due to filing poor or improper returns, and sometimes jail
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BASIC PUBLICATIONS AND FORMS FOR SMALL BUSINESS
These are the Basic Publications, Forms and Schedules Needed for Filing and
Paying Business Taxes
>Use Publication 505:
For Tax Withholding and Estimated Tax
>Form 1040 (and Instructions):
For U.S. Individual Income Tax Return
>1040-ES for Estimated Tax for Individuals
>Schedule C (Form 1040) For Profit or Loss from Business
>Schedule C-EZ (Form 1040) For Net Profit from Business
>Schedule SE (Form 1040) For Self-Employment Tax
>For Reporting Employment Taxes (For Employers)
>941 or 944 For Social security and Medicare taxes and Income tax
>940 For Federal Unemployment tax (FUTA)
>Excise Tax – See Excise Taxes at, Internal Revenue Website
IDENTIFICATION NUMBERS NEEDED FOR PAYING TAXES
>For most taxpayers your social security number is used on individual tax forms
and schedules. An example is the 1040 and the schedules with it.
There is another tax ID number called the ITIN or individual taxpayer
identification number. This number is for nonresident or resident alien taxpayers
who are not eligible for a social security number. For those who obtain an ITIN,
they must attach a form W-7, application for the ITIN with their original completed
tax form and all required documents to the address on the W-7.
Employers must also have an EIN or employer identification number, if 1) they pay
wages to one or more employees, or 2) files pension or excise tax forms.
You can apply for an employer identification number by calling the IRS or going to
the small business section of the IRS.gov website.
If you have employees, you must get a social security number from each one.
If you make payments to someone who is not an employee you must report that on an information
return including the persons social security number, if the payment is to a corporation or
partnership, you must get their EIN.
For 2014, you must file an income tax return if your self-employment earnings were $400.00 or
more. If your self-employment earnings were less than $400.00, you must, refer to the
form 1040 to see if you meet any of the other filing requirements.
TO FILE YOUR TAXES
Your income tax is reported on form 1040, then attach Schedule C or Schedule C-EZ.
Use page 1 of Form 1040 to report your net profit or loss from Schedule C or
Schedule C-EZ. The net profit or loss from your business is calculated on Schedule
C. If you are an owner of multiple sole proprietor businesses, you must attach a
Schedule C for each business.
If you only have one business as a sole proprietor, did not have a net loss, and
meet the other requirements listed in Part 1 of the schedule, you can use the
simpler Schedule C-EZ.
Business people who are self-employed are required to pay a self-employment tax consisting of
paying Social Security and Medicare tax. It is similar to the Social Security and Medicare
that employees pay.
The social security retirement you get when you retire is based on the social
security tax you pay as an employer or employee.
For employers with employees, you must report taxes for employees as 1) Social
security and Medicare tax, 2) Federal income tax withholding, 3) Federal
unemployment (FUTA) tax. 4) Some states have state income tax you must pay to the
You must pay excise tax for the manufacturing or selling certain products,
operating certain types of businesses, or using various types of equipment,
facilities, or products. Also, if you receive payments for specific types of
services. Two federal excise tax forms are Form 720 and Form 2290. See IRS
Publication 510, to get all of the facts about excise tax.
Information returns may be required if you make a payment or receive payments in
your business. The information return is compared to the information you or your
payee business pays, so the IRS knows that all income is reported.
>Information returns are the 1099-MISC: reported to the IRS when you make a payment
to an individual or business.
>Form W-2: is a wage and tax statement you must supply to the IRS when you have employees.
>Form 8300: is required when you receive more than $10,000 in cash to your business.
For more and specific details on forms you must summit, go to IRS.gov.
The above summary of taxes, forms and publications for small business are the basics
that most small businesses should know. Educate yourself so you can verify that your
tax person is preparing your taxes correctly, and stay in good standing with the
internal revenue service.
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Live Rich, Lois
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