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IRS Tax Tips for Starting a Business

posted Aug 25, 2015, 10:38 PM by Zaher Fallahi

When you start your own business, a key to your success is to know your tax obligations. You may not only need to know about income tax rules, but also about payroll taxes. Here are five IRS tax tips that may help you get your business off to a good start.


1. Business Structure.  An early choice you need to make is to decide on the type of structure for your business. The most common types are sole proprietorship, partnership, corporation and LLC. The type of business you choose will determine which tax forms you must file.  Note, click here for similar information in Zaher Fallahi, CPA Website


2. Business Taxes.  There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. In most cases, the types of tax your business pays depends on the type of business structure you set up. You may need to make estimated tax payments to avoid penalties and interest. If you do, use IRS Direct Pay to pay them. It’s the fast, easy and secure way to pay directly from your bank account.


3. Employer Identification Number or Fed Tax ID.  You may need to get an EIN for federal tax purposes. Search “do you need an EIN” on to find out if you need this number. If you do need one, you may apply for it online. You will need the type information you need to fill out an SS-4 form.


4. Accounting Method.  An accounting method is a set of rules that you use to determine how to record and report income and expenses. You must use a consistent accounting method. The most common methods are the cash and accrual. Under the cash method, you normally report income as you collect them and deduct your expenses as you pay them. Under the accrual method, you report income as earned and deduct expenses as you incur them. This is true even if you get the income or pay the expense in a later year.


5. Employee Health Care.  The Credit helps small businesses and tax-exempt organizations pay for health care coverage they offer their employees. A small employer is eligible for the credit if it has fewer than twenty five full-time employees, or a combination of full-time and part-time. The maximum credit is 50% of premiums paid for small business employers and 35% of insurance premiums paid for small tax-exempt employers, such as charities.


The employer shared responsibility provisions of the Affordable Care Act affect employers employing at least a certain number of employees (generally  fifty full-time employees or a combination of full-time and part-time employees). These employers’ are called applicable large employers (ALE). ALEs must either offer minimum essential coverage that is “affordable” and that provides “minimum value” to their full-time employees and their dependents, or potentially make an employer shared responsibility payment to the IRS. The majority of employers will fall below the ALE threshold number of employees and, therefore, will not be subject to the employer shared responsibility provisions.


Employers also have information reporting responsibilities regarding minimum essential insurance coverage they offer or provide to their fulltime employees.  Employers must send reports to employees and to the IRS on new forms the IRS created for this purpose.


Zaher Fallahi, Tax Attorney, CPA, is an IRS Defense Attorney, and assists taxpayers including Americans Living Abroad and Non-Resident Aliens subject to the US tax law, in resolving their tax controversy regarding their Offshore Voluntary Disclosure Program (OVDP), Report of Foreign Bank and Financial Accounts (FBAR), Foreign Account Tax Compliance Act (FATCA) and Foreign Trust. The firm handles Offer-In-Compromise and non-filed tax cases.  Telephones: (310) 719-1040 (Los Angeles), (714) 546-4272 (Orange County), e-mail