Important Tax Considerations When Starting a New Business

It’s exciting when someone is starting a new business. Many new entrepreneurs have worked in a corporate environment for years and found themselves longing for meaningful work and a chance to really make it in life. Often, they found themselves dreaming of what it would be like to work for themselves instead of toiling endlessly just to make the boss look good. The opportunity to start their own business captivates them, beckoning them to the promised land. Then, one day, they cross the threshold and take the steps to launch their dream in the world. They spend hours creating the perfect name, filling out incorporation papers and designing their business card. 

Alone, or with their partners, they create a strategic vision and refine and further fine tune their marketing plans. There’s an office to rent, infrastructure to put in place and finally there’s the moment of achievement when you open your doors to the world. Sounds like a dream come true, right? It is but many people do not realize the hard work involved with running a business. Let’s take tax returns for example. You need to get familiar with tax legislation and you need to know what kind of records to keep to stay in compliance. On that note, let’s discuss some important tax considerations you should know as a new business owner.  

Hire A Professional

Unlike working in a corporate environment, where you filled a single position, in your new venture you have to wear all of the hats. It’s likely that you are the sales representative, copywriter and marketing guru too. You’ll have to handle employee issues, craft business policy and juggle all your responsibilities at once. Before you get your first customer and bring in a single dollar of revenue you should hire a bookkeeper and implement good business financial software. You should talk to an accountant and a financial advisor about your own person situation and see if you can improve your finances. Is there a way you can refinance student loans in order to save money? Can you combine your loans into one monthly payment? Are you entitled to any start-up grants? These are all things a professional can help you determine. 

Accurately Calculating and Recording Sales Tax

When you sell products, services or provide ancillary services such as shipping you may have an obligation to correctly calculate and collect sales tax. On each invoice you will need to determine which items are taxable and then apply the correct rate based on the location to which the items will be shipped or the service provided. Forty-five states have sales tax at the moment. Sales tax is basically a percentage applied to each taxable item on a sale. Typically, there is a rate for the state levy, another percentage for the county and also a local rate. Each state defines which items are taxable in different ways, so you have to be sure you understand exactly which products and service are taxed in your area. You need to collect the proper amount and keep those funds on hand until you file your monthly or quarterly return. 

Payroll Taxes and Withholding

Making sure you are handling payroll correctly is absolutely critical in business. When you calculate pay and come up with a gross amount for the pay period, you will also be responsible for federal and state income tax withholding on the employee pay. There will also be deductions for withheld employee Social Security tax and Medicare. Some states also have you take out or pay for disability or unemployment too. It’s best to contract payroll services out to a reputable national firm that handles payroll and reporting for many different clients. By doing this, you can be sure that your payroll calculations are handled in the right way and that the employee payroll filings are on time and correct. You also must assure that you have the funds on hand to pay your payroll obligations or else you may be held personally responsible for shortfalls, even if your business is a corporation.

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