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What about Business Taxes? Don’t get your EIN too Early

When you are starting a business, what do you do about business taxes? This is an important question because there is a strict tax law in theBusiness Taxes United States. The form of business you operate determines the different business taxes you will pay and how you pay. The first thing to do once you start a business is to get an Employer Identification Number (EIN) otherwise known as a Federal Tax Identification Number. This number is the way the Internal Revenue Service identifies your business entity.

Applying for an EIN is not difficult; you may apply online at the IRS. gov. This is a free service offered by the Internal Revenue Service. One word of warning! Do not apply for an EIN number before you actually begin a business. Once you get the EIN number, you must file a tax return even if you have not made any money. If you neglect to do this the IRS can come back and fine your company for not paying its business taxes.

The IRS penalty for failing to file business taxes is pretty severe. For each whole or part month that a return is not filed when it is due, disregarding any extensions of the filing deadline, there is a failure-to-file and a failure-to-pay-penalty. These penalties run between 5% and 25% of any unpaid tax due.

You may be saying, “Big deal. I don’t owe any business taxes.” But I have known of companies that have been assessed a failure to file penalty of $130 a month per employee. These penalties were assessed because of wages that were made later in the life of the company. The IRS website says, “If both penalties apply in any month, the failure-to-file penalty is reduced by the amount of the failure-to-pay penalty. The penalties will not be charged if you have a reasonable cause for failing to file or pay. If you receive a penalty notice, you can provide an explanation of why you believe reasonable cause exists.”

My point is, wait to get your EIN number until you start the business. Then be certain to file your business taxes.

Four Kinds of Business Taxes

Generally you will pay four types of business taxes. First as discussed above your business must file an income tax return itemizing everything your company makes. Next your business must pay a Social Security and Medicare tax on all employees, or self-employment taxes if you are the sole employee. Finally your business may owe excise taxes if you manufacture or sell certain products, or if you operate certain kinds of businesses, use various kinds of equipment, facilities, or products, or receive payment for certain services.

The federal tax is a pay-as-you-go tax. This means that you cannot pay your business taxes once a year on April 15. You must pay withholding taxes, Medicare and Social Security taxes throughout the year. The amount of your payroll and the number of employees determines how often you pay. There are guidelines in IRS Publication 583.

While it is important to take care of your business taxes, I would also like to add that your business can be your best tool to save taxes. I have compiled a list of Ten Tax Tips. Most of the tips require having a business to use them. If you have a business, take a look at my complimentary tax tips and start saving tax today.

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