6 Helpful IRS Tax Tips For Aspiring Entrepreneurs

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Entrepreneurship is a tough game because there are hundreds of things that you need to handle. Establishing a startup is challenging enough and tax trouble popping up suddenly is the last thing that you may want to face. To make things worse, taxes can be stressful and time-consuming as well. Filing your returns and paying taxes on time are not the only ways to steer clear of tax troubles. Rather, you need to be well aware of other aspects of taxes and also know what kind of problems you may come across with your startup. The best approach is to always be on toes for preventing IRS issues in the first place and also be ready to deal with them if something goes wrong. Here are some helpful IRS tax tips for aspiring entrepreneurs.

Choose the right entity for your business 

Since you are probably just starting up, choosing the right kind of entity for your business can save taxes for you. Whether you plan to run as a sole proprietor or operate as a partnership, LLC or corporation will decide how you pay your taxes and also how much tax you pay. You may also consider the option of operating as a freelancer. The best approach is to seek the advice of a tax professional, who will assess your requirements and advise you about the entity you should select while considering the suitability for your business. 

Get an employer identification number

It is mandatory for every business, even a sole proprietor, to get an employer identification number (EIN) right at the start. If you plan to run as a sole proprietor, you may use your Social Security Number as the identification number of your business. However, this is not the wisest move because you will have to provide the SSN to any client or vendor, which elevates the risk of identity theft. So you must go ahead and apply for an EIN using IRA’s online form. The best part is that it is free and will not spell any cost for your new business.

Seek professional help

As an entrepreneur, you may want to save up and manage your payroll and taxes by yourself. But this is the last thing that you should do because you may end up missing deadlines, filing wrong returns or even failing to get the benefit of the permissible deductions. You can turn things over to a CPA to save hassles and money in the long run. Even better, collaborate with seasoned tax attorneys who handle payroll tax issues to manage A to Z of your taxes. Not only will they ensure that issues don’t crop up, but they can also handle things with the IRS if there is a problem at any stage.

Never mix business and personal expenses

When you are a first-timer, it is easy to mix business with personal expenses but this is something you should absolutely avoid. A mix-up in your accounts makes things complicated and your accountant will have to work hard to sort things out at the time of filing tax returns. So you may face elevated cost for tax preparation in addition to paying the tax itself. It is better to be aware right from the start if you want to avoid this mistake. Setting up a separate checking account for the business is a smart move.

Pay estimated quarterly taxes

For new entrepreneurs, it is important to stay one step ahead of the taxes because resolving troubles can put them off track. Ensure that you pay up your estimated quarterly taxes, even if you have self-employment income. This is easy to overlook, particularly because you may be used to having the taxes withheld from your paycheck before you started your own business. Sticking to the tax deadlines is equally important if you want to stay out of trouble with the IRS. 

Set aside money for taxes

Tax planning is as important as tax payment itself but it can get complicated for beginners. The best way to do this is by having separate savings account to set aside money for taxes.  When you start your own business, your taxes are your responsibility alone and proper planning is the smartest approach to handle them. Being aware of the admissible deductions and tax deadlines also helps.

Tax handling is a key aspect of your entrepreneurial journey and you should take it as seriously as any other aspect of running your business. Even the slightest mistake can get you in bad books of the IRS, which is something that you wouldn’t want to happen. 

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