Before you launch your company, it's important to understand that you, as the owner, are responsible for filing a number of tax-related forms and making tax payments to the IRS and other government agencies according to their timetable and deadlines (not just at your convenience).

This section of InterShopZone's Tax Center gives you the overview of what you'll be getting in for. Then we walk you through the steps to get organized for your tax obligations.

Contents of this Startup Tips Section

• Be sure you are up for the task
  Are you disciplined enough to write down and file details describing money that goes out and comes in? Can you force yourself to keep receipts and mileage records even though it seems like an unnecessary hassle? Can you pay for a freelance assistant or staffer to take care of the filing and computer inputting for you -- so you can focus on the ‘big picture' view of your business finances? Or are you willing to deal with the recordkeeping yourself?
  
  If all this sounds like just too much trouble, maybe you'd better stick with a job where taxes are already taken out of your paycheck and tax filing is a comparative no-brainer. Because if you want to own a small business, you have to produce detailed financial records. The summaries from these details will be written into your tax returns. Corresponding paper trails will be stored for years in your attic or garage. And, of course, your financial numbers are your constant guide for making the decisions that propel your business forward.
  
  OK, so you're serious about starting in business... now for what you need to do to be ready for business taxes

  Don't make the mistake of naively jumping into business without laying the preparation for your tax responsibilities. The IRS and other government agencies don't take ignorance of their rules and deadlines as an excuse. So head off potential problems from the start.

  Line up a tax professional you feel comfortable working with
  I know many of you are the “I'll just do everything myself” breed of entrepreneur. Or, you'd like to use a tax professional, but you're afraid you can't afford one yet.

  So from the very start, plan that an accountant is one of your most necessary business expenses. Find a way to come up with the few hundred dollars your initial accountant meeting will cost you. Use this meeting to get your business started on all the right feet.
  
  What to ask your accountant's office before your first meeting
  Get the sticker shock out of the way before the meter starts running. Ask what's likely to be their office's annual fee for preparing your tax returns and meeting with you a couple of times a year.

  If your company might be an LLC or corporation, be sure to get a clear understanding of the extra accounting costs that will be involved, including (for corporations) the processing cost of paying yourself as an employee of the corporation.

  Don't have an accountant? We share ways to find one:

• What you need to do to be ready for business taxes
  
  What to ask your accountant at your first meeting
  1. What form of business entity you should establish
  2. When do you need to start paying estimated taxes
  3. Which accounting software do they recommend
  4. What chart of accounts should you set up in the software
  5. Can they help you get organized to handle employer taxes
  
  1. What form of business entity you should establish
  Ask your CPA what form of business he or she thinks you should start with -- sole proprietorship, Limited Liability Company (LLC) or corporation (C Corporation or S Corporation). (Notice that we left out partnerships because they seldom work, so select a different form.) The accountant will ask you a few questions, then recommend which form seems right for your startup. If the form you choose requires legal help, ask your CPA to recommend an attorney.

  Note : CPAs and attorneys in the same general location typically know which of their fellow professionals have experience in what types of work for which industries. If they refer another professional to you, their referral is based on insight you could never glean from phone books or resumes.

  Also, on the IRS site, their Frequently Asked Questions (FAQs) provides plain language, short answers to questions from people like you on business entity forms and many other helpful topics. Start with the Small Business/Self-Employed part of the FAQ index and explore by category or keyword. Or, better yet, just browse through -- you're sure to learn tips you never thought to ask about.

  IRS FAQ Link
  
  2. When do you need to start paying estimated taxes
  Now that you will be a business owner, you will be paying your own taxes as you go instead of having an employer withhold them from your salary checks.

  Depending on your situation, you may not have to pay estimated taxes to begin with -- or you may. Your accountant will tell you which situation you fall in. And if you'll need to pay, she'll give you or direct you to the proper forms to use.

  3. Which accounting software do they recommend
  Before you officially launch, get your ducks in a row and your accounting software ready. When you meet with your accountant, discuss which accounting software program you're considering for your small business and see what she thinks. You don't want to go with something that's going to cause problems down the line. And you certainly don't want to change programs -- converting from one program to another is a hassle you want to avoid if you possibly can.
  
  4. What chart of accounts should you set up in the software
  Every accounting setup has a chart of accounts -- it's the accounting framework which organizes all of a company's transactions. To normal people “chart of accounts” is a misnomer. It is not a chart, like you think of a pie chart or bar graph. And everything in it is not what you think of as an “account” -- although some of these accounts do happen to be bank accounts.
  
  The chart of accounts is a just a list of the different buckets which can accept numbers that represent amounts of money. Some buckets are grouped together in various hierarchies. Your software program will offer several suggested charts of accounts, including some for certain industries or business situations.

  It's important to get your tax pro's okay before you charge in and start using a software program's chart of accounts as-is, because he probably won't agree 100% with what the program suggests. In fact, many of accountants prefer to provide you with their own list to set up from scratch instead of using the software's default.
  
  5. Can they help you get organized to handle employer taxes
  If you doubt you'll ever hire any employees, you can skip this question. But if you anticipate having employees in the future, ask it now.
  
  Having employees requires whole new levels of paperwork and money management. So you need to know in advance whether your accountant's office will help you when the need comes or if they recommend other resources.

• If you'll have employees, learn employer tax obligations
  As an employer you're required to withhold chunks from employee paychecks, plus you must pay other employer taxes -- and provide timely and proper reports to the IRS and various other federal and state agencies. It is imperative that you understand exactly what all is required.

  Employer tax responsibilities are so complex and handling them right is so critical that you want your accountant's blessing on how you go about this. And, preferably, you want their office to help you set up your employer tax system, whether it will be handled in-house at your company or coordinated with an outside payroll service provider.
  
  Tip: Use an outside service to handle your company's payroll. Outside payroll services are available from your bank, your accounting software company or other providers for a modest fee. They handle the ongoing detailed paperwork for you 100% correctly -- cheaper and quicker than you could do it in-house.

  And there are added benefits you don't think about. Like whenever the government makes a change in something, your payroll service provider just takes care of it -- even if the change is retroactive! You won't have to pour over the government gobbledygook trying to understand what must change. Your payroll service has attorneys and CPAs who enjoy doing that much more than you ever will.
  
  Where to get info about employer taxes
  Since our focus here in on income tax issues, we won't detail your employer tax responsibilities, but use these resources to familiarize yourself with what's expected.

  IRS Publication 15 (Circular E) Employer's Tax Guide
  When you glance at this 68-page manual, you will see why you asked your accountant about help.

  Search for 15 via the drop-down for “Forms & Publications” on the IRS site.

  IRS FAQ's
  You may like the more casual approach to this topic in IRS FAQs. This makes no claim to being totally comprehensive but does have answers to employer questions about reporting tips, mailing W-2s, providing benefits, day care, tuition reimbursement and much more.

  IRS FAQ Link

  State Employer Info
  For corresponding state employer info, check with your state's Department of Revenue (which may be called something else, like Board of Equalization). Use the handy links at:

  State and Local Government on the Net

  Your friendly local SBDC
  Also check with your local Small Business Development Center (SBDC). One of their main goals of this Small Business Administration (SBA) program is to help small companies create more jobs in their region. So your SBDC may offer classes and other help for employers. You can find your closest SBDC by looking in the front of your phone book in the “government” pages, most likely listed within community colleges under public schools. Or you can click to SBDCs in your state or territory from this map:
  
  Small Business Development Centers

• If you need or want an EIN, get one

  If you need or want an EIN, get one
  An EIN is an Employer Identification Number that serves the purpose of identifying a company, similar to the way a social security number identifies an individual. EINs are issued by the IRS.
  
  Some companies are required to have an EIN; for others it's optional. To know which category you fall in, you will have had to determine which form of business entity you will start with -- sole proprietorship, LLC (Limited Liability Company), or corporation. If you talked with your tax professional, you probably know the answer. Who needs an EIN
  Business entities that are separate from you as an individual, such as corporations and LLCs
  
  Any business that will have employees
  
  Who's not required to get an EIN, but might want one
  A sole proprietor who wants to separate the business from his or her individual social security number.
  
  A proprietor who wants to establish business credit that is separate from personal. A good idea, especially if your personal credit score is less than great and would hold back the business' opportunity to make purchases and borrow to expand.

  Now you can receive an EIN in seconds from IRS online
  This page will give you more information about the EIN and point you to the application:

  IRS.gov Employer ID Numbers (EINs)

  Bonus EFTPS with your EIN
  Now, when you apply for an EIN, you receive the preliminary setup for EFTPS , the Electronic Federal Tax Payment System. This means the groundwork is already laid for your being able to pay taxes as painlessly as it can get.

• Set up your accounting software
  
  Set up your accounting software
  Back at your office you can step over to your computer, fire up the accounting software and set up your company's accounting file. Go through this process carefully, naming and grouping each item in the chart of accounts per your tax pro's instructions. You might want to do this task yourself instead of delegating it. Your accounting software makes it easy and setting up the account system yourself will give you a hands-on feel for the logic behind it.
  
  Or you could have a bookkeeper or assistant handle this task for you. (Although, if they haven't done this before, it would be better to do it yourself.) Just be sure items are named and grouped exactly the way your accountant wants it done. This is not the place for uninvited creativity!

  Now you have the empty “buckets” ready to be filled with real numbers when you start making sales and purchases.

  Create a budget, too
  Now that you've got your accounts set up in your accounting program, snoop around in the program to see all the types of reports it can give you. Wow -- you'll find all sorts of reports to help you look at and guide your business as it grows.

  Why not set up an annual budget while you're at it? Then, each month you can compare where the business actually is, financially speaking, to where you anticipated it would be according to your budget.

  Coordinate with your business plan
  If, as all smart business owners should do, you created a business plan, you can transfer its numbers into your budget. After your company develops some history, you'll see how good the predictions in your plan turned out to be. Then you can see where to make adjustments based on actual performance.

  Find the software's setup area for budgets. (Your program will instruct you how to use it.) Basically, you'll want to fill in numbers for the different expenses you anticipate. For some expenses, the amount will be the same each month; others may vary by amount and/or frequency.

  Print out the budget you've created-- now you are looking at your projected monthly “nut” -- what it will cost you to keep your business in operation. Use this as your first guide for cash flow planning.

  You can also add various estimates of income. Now you'll be able to see when you will break even -- the point at which expenses are no longer greater than income. Have some fun with this now, while you have time before you get totally embroiled in the thick of doing business. Then, once you're up and running, revisit your budget vs. actual picture monthly to see how things are doing.

• More sources of help for startups
  
  More sources of help for startups
  When you are preparing to start a business you want to be sure you find all the information you need and but you don't want to get overwhelmed. And you don't want to spend so much time reading that you never get around to taking action.
  
  But if you're hungry for more info, browse through these resources:
  
  IRS Publication 583 Starting a Business and Keeping Records
  Quite possibly the friendliest of the IRS publications, it's only 27 pages and not overwhelming. It shows helpful examples of typical small business records, so you can see what's expected. Although these samples still show the outdated by-hand method, your computer records will look similar.
  
  Search for 583 via the drop-down for “Forms & Publications” on the IRS site.

  IRS Starting a Business
  
  IRS site section for “Starting a Business”
  Although it is somewhat buried, the IRS has a good landing page that points you to what small business owners need to know about federal taxes. The path to find it is IRS.gov > Information for Businesses > Small Bus/Self-Employed > Starting, Operating or Closing a Business > Starting a Business or here's the link: