Going into business for yourself is exciting, and being your own boss can be both rewarding and financially lucrative. However, there is more to going into business than hanging out a shingle. There are numerous legal documents required, including tax related forms.
Establishing Your Business
The structure of your business is one of the most important decisions you will make. There are six categories of business structures for commercial (for-profit) enterprises: sole proprietorship, partnership, cooperative, limited liability company (LLC), S corporation, and C corporation. Corporations are considered separate legal entities by the IRS, and must file separate income tax returns. Other business structures do not have separate legal status, which, in most cases, means that members must file individual income tax returns. However, members of LLCs may be individuals, partnerships, or corporations.
In addition, many states and municipalities require registration, licensing, or both, for businesses operating within their jurisdictions. Given the complexities associated with establishing a business structure, consulting with experts, like the attorneys at Law 4 Small Business, before setting up shop is a wise strategy.
Tax Forms for Hiring Employees and Contractors
If you hire employees or contractors, there will be many tax forms you must fill out. You must obtain an employer identification number (EIN), regardless of your business structure. Likewise, corporations are also required to obtain an EIN, whether or not they hire employees or contractors, because of their separate legal status. You will also be required to obtain I-9 forms to ensure that your employees or contractors are entitled to work in the United States. Each employee must also be issued Form W-2 for wages, while contractors should be issued Form 1099 for non-wage earnings.
Filing Federal and State Tax Returns
Most self-employed entrepreneurs and small business owners must file an individual Form 1040, along with Schedule C, to document business-related income and expenses. However, officers of C corporations must file income tax returns for their companies, along with individual income tax returns to report their wages. They must also report earnings from dividends earned from stock they hold in their companies. The requirement to report dividend income along with corporation income is what is known as “double taxation.”
This short overview represents only a fraction of the tax law related to starting and running a small business. To obtain more detailed information about tax law relating to your particular company, give us a call. We’ll help ensure that you stay on the right side of the IRS.