Starting a Small Business
As a new business owner, you will have many new responsibilities – one of the most important is your federal tax responsibilities.
- What are my federal tax responsibilities?
- Do I need an Employer Identification Number (EIN)?
- How do I apply for an EIN?
- What accounting periods and methods do I use?
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 need to be paid on a more frequent basis.
For more information, 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.
Do I need an Employer Identification Number (EIN)?
An Employer Identification Number (EIN) is a nine digit number assigned by the 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, download Publication 1635, Understanding Your EIN, 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 on the IRS Small Business page. The EIN is issued immediately.
- Telephone – Call 1-800-829-4933 from 7 a.m. to
10 p.m. local time. - Mail or fax – Mail or fax Form SS-4, Application for Employer Identification Number (see SS-4 instructions for mailing and faxing instructions). You may download the form or call 1-800-829-3676 to order the form by mail.
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 and expenses, you can use the same method for many years.
For more information, download Publication 538, Accounting Periods and Methods, at www.irs.gov or call 1-800-829-3676 to order the publication through the mail.
