IRS highlights information and free resources in recognition of National Small Business Week

As part of National Small Business Week, April 30 to May 6, the Internal Revenue Service is highlighting tax benefits and resources to help those looking to start a business.  They provided lots of information, two of which we will highlight here:

Business Structure

Taxpayers must decide what form of business entity to establish when starting a business. This helps determine which income tax return form must be filed. The most common business structures are:

• Sole proprietorship - When an individual owns an unincorporated business by themselves.
• Partnerships - The relationship between two or more people to do trade or business.
• Corporations - In forming a corporation, prospective shareholders exchange money, property or both for the corporation's capital stock.
• S Corporations - Are corporations that elect to pass corporate income, losses, deductions and credits through to their shareholders for federal tax purposes.
• Limited Liability Company (LLC) – Are allowed by state statute and may be subject to different regulations. The IRS will treat an LLC as either a corporation or a partnership, or as part of the owner's tax return (e.g., sole proprietorship), depending on elections made by the LLC and its number of members.

Understand Business Taxes

By law, everyone must pay taxes as they earn income. For small business owners and self-employed people, that usually means making quarterly estimated tax payments as their business earns or receives income during the year. The form of business being operated determines what taxes must be paid and how to pay them. The four general types of business taxes are:

• Income tax - All businesses except partnerships must file an annual income tax return. Partnerships file an information return.
• Self-employment tax - Is a Social Security and Medicare tax primarily for individuals who work for themselves. Payments contribute to the individual's coverage under the Social Security system.
• Employment tax - When small businesses have employees, the business has certain employment tax responsibilities that it must pay and forms it must file.
• Excise tax – Excise taxes are imposed on various goods, services and activities. Such taxes may be imposed on the manufacturer, retailer or consumer, depending on the specific tax.   

In Hawaii we also have:

• State income tax -All businesses except partnerships must file an annual income tax or information return.

• General excise tax (GET - Is an excise tax imposed on the gross revenues a business earns. 
• Use tax - This is a tax imposed in imported goods from out of state.

Before starting a new business, become familiar with these taxes.  Planning from the beginning and paying taxes on time as you go can save a lot of headaches in the long run.

To learn more about small businesses, see IRS highlights information and free resources in recognition of National Small Business Week | Internal Revenue Service.