IRS tax tips for Illinois small business formation

Many Illinois business owners know that there are a lot of decisions to make when starting a business. Some of those decisions will center around the tax ramifications of small business formation. Taxes will vary depending on the type of business and its structure.

Whether the business is a corporation, partnership, limited liability company or sole proprietorship will determine what kinds of tax forms the company will be required to file. There are four different kinds of taxes businesses will pay, and the type of business will dictate which ones will be owed. They are excise tax, employment tax, income tax and self-employment tax.

Once a business owner has determined the structure, knows what tax forms will be needed, and what types of business taxes will be owed, an Employer Identification Number (EIN) will need to be obtained. This is the businesses equivalent of a social security number and will forever identify the business to the IRS. As is the case with social security numbers, no two businesses will have the same EIN.

As is the case with personal taxes, keeping good records is essential. Whatever records system a business chooses, it is important that it clearly indicates the businesses income and expenses. Lastly, an accounting method such as the accrual method or the cash method will help a business in its financial reporting. Again, regardless of the method chosen, it needs to be consistent and accurate.

Many Illinois entrepreneurs can get overwhelmed with all of the issues needing attention in small business formation. It may be beneficial to consult with someone who understands what is required and how each decision will affect the operation of the business. Doing things right in the beginning can save time and money in the future.

Source: 

The Redding Pilot, "Tax tips if you're starting a business," Dianne Besunder, July 9, 2013

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