Starting a Small Business

What New Business Owners Need To Know

As a new business owner, you will have many new responsibilities. One of the most important is your federal tax responsibilities.

 

Do I need an EIN?

An Employer Identification Number (EIN) is a nine digit number assigned by the Internal Revenue Service (IRS). EINs are used by employers, certain sole proprietors, corporations, partnerships, limited liability companies, estates, trusts, and other entities.

You are required to have an EIN if you do one or more of the following:

• Pay wages to one or more employees
• Operate your business as a corporation or partnership, or
• File an employment, excise, pension, or alcohol, tobacco and firearms tax return

For more information, you may download Publication 1635, Understanding Your EIN, at www.irs.gov or call 1-800-829-3676 to order the publication through the mail.

How do I apply for an EIN?

• Online - Go to the Online Application at www.irs.gov/business/small. The EIN is issued immediately.
• By telephone at 1-800-829-4933 from 7:00 a.m. to 10:00 p.m. local time.
• By mailing or faxing Form SS-4, Application for Employer Identification Number (see SS-4 instructions for mailing and faxing instructions). You may download the form at www.irs.gov or call 1-800-829-3676 to order by mail.

What are my federal tax responsibilities?

Understanding and complying with tax requirements is a necessary aspect of doing business. Federal income tax is a pay-as-you-go system. Business owners generally pay income taxes and self-employment taxes in quarterly estimated income tax payments. The self-employment tax funds the social security and medicare account for self-employed persons. Employment taxes may be required to be paid on a more frequent basis.

For more information, you may download Publication 505, Tax Withholding and Estimated Tax, at www.irs.gov or call 1-800-829-3676 to order the publication through the mail. If you have employees, you will need to follow the guidance in Publication 15, Circular E, Employer's Tax Guide.

What accounting periods and methods do I use?

You must figure taxable income and file a tax return based on an annual accounting period called a "tax year." You choose an accounting method when you file your first tax return. You do not need IRS approval to choose the method. As long as the accounting method clearly shows your income, you will use the same method for later years.

For more information, you may download Publication 538, Accounting Periods and Methods, at www.irs.gov or call 1-800-829-3676 to order the publication through the mail.

Who should I contact for help?

If you have questions, concerns, or need information about starting a small business, you may contact:

• IRS
  (1-800-829-7650)
• Social Security Administration
  (1-800-772-6270)
  (Employer Information Line)
• Small Business Administration
  409 3rd Street, SW
  Washington, DC 20416
  (1-800-U-ASK-SBA)

Additional Resources

You may download multiple small business forms and publications at www.irs.gov or call 1-800-829-3676 to order by mail.

• Publication 1066C, A Virtual Small Business Tax Workshop DVD is an educational product that helps small business owners understand and meet their federal tax obligations.
• Publication 3207, The Small Business Resource Guide CD-ROM is an interactive CD designed to help small business owners comply with the tax laws and includes business tax forms, instructions and publications.
• Publication 1518, IRS Tax Calendar for Small Businesses and Self-Employed highlights tax issues and tips and has space to add notes, state tax dates, or business appointments.
• Publication 334, Tax Guide for Small Business contains general information about the federal tax laws that apply to small business owners who are sole proprietors.
• Publication 583, Starting a Business and Keeping Records provides basic federal tax information for people who are starting a business. It also provides information on keeping records and illustrates a recordkeeping system.