IS YOUR BUSINESS COMPLIANT WITH IRS

FILING REQUIREMENTS

PREPARED BY: CARMEN I. VELAZQUEZ, INTERNAL REVENUE SERVICE, ENROLLED AGENT

NOVEMBER 30, 2013

WHAT YOU NEED TO KNOW ABOUT

FEDERAL TAXES AND YOUR NEW BUSINESS.

We will provide an overview of what you need to know about successfully operating your business as well as provide you with some resources for additional information.

Objectives:

1. Explain the purpose of the EIN

2. Describe the basic recordkeeping requirements for tax purposes

3. Define basic bookkeeping and accounting methods

4. Explain the forms of business organizations

THE PURPOSE OF AN EIN

A business owner will need an EIN if you pay wages, have a self-employed retirement plan, operate your business as a partnership or a corporation, or if you are required to file any of these tax returns:

1. Employment

2. Excise

3. Fiduciary

4. Alcohol, Tobacco and Firearms

THE PURPOSE OF AN EIN

As a sole proprietor with no employees and don’t meet any of these requirements, you don’t need an EIN. Unless you are dealing with other businesses, including banks, that require an EIN to set up business accounts. The IRS will give you an EIN even if you don’t need it for IRS Purposes

WHAT IS THE PROCESS TO

OBTAIN AN EIN?

The fastest and easiest way to obtain an EIN is online. Just go to www.IRS.gov and type in the keyword EIN. From there you will find more information, including the application that you must complete in order to get an EIN. Although the IRS calls this a provisional EIN, the EIN is actually the permanent federal employer identification number for your business. It can be cancelled if the name and social security of the principal officer do not match the Social Security Admin records or if your business already has an EIN.

DESCRIBE THE BASIC RECORDKEEPING

REQUIREMENTS FOR TAX PURPOSES

A business owner must keep the following records in order to prove your non-business and non-taxable items:

1. Receipts

2. Sales slips

3. Invoices

4. Bank deposit slips

5. Cancelled checks

6. Other documents to substantiate items of income, deductions, and credits.

Recording these items will help you pay only the tax you owe.

HOW IN-DEPTH DO RECORDS NEED TO BE

AND HOW LONG DO YOU KEEP THEM?

Records must support the claimed amount, the time and the place, the business purpose, and your business relationship to any other person involved. If your records are incomplete, they may not support your deductions. You must keep your records as long as their contents may be material in the administration of any IRS law. Usually the statue of limitations for an income tax return expires three years after the return is due or filed or two years from the date the tax was paid whichever is later. To support items of income or deduction on your return, you must keep records until the statute of limitations for that return expires.

WHAT ARE THE TYPES OF BOOKKEEPING

SYSTEMS & ACCOUNTING METHODS

There are two types of bookkeeping systems:

1. Single Entry

2. Double Entry

There are two types of accounting methods:

3. Cash Method

4. Accrual Method

WHAT ARE THE DIFFERENT BUSINESS

STRUCTURES?There are five common types of business organizations:

1. Sole Proprietorship

2. Partnership

3. Limited Liability Company (LLC)

4. S Corporation

5. Corporation

WHAT IS A SOLE PROPRIETORSHIP?

A Sole Proprietorship is the simplest type of business organization. It is an unincorporated business that one person owns. The business does not exist apart from its owner, and it is the owner who assumes the risks of the business to the extent of all his or her assets, even if the owner does not use his or her personal assets in the business. Additionally, the ability to finance the business, known as capital, is limited to whatever the owner can come up with.

WHAT IS A PARTNERSHIP?

A Partnership is a relationship between two or more persons who join together to carry on a trade or business. Each person contributes money, property, labor, or skills, and each expects to share both in the profits or the losses of the business. Any number of persons may join in a partnership. The advantages of a partnership are that it is easy to organize, it has a definite legal status, and it may have a greater financial strength than a sole proprietorship.

WHAT IS A LIMITED LIABILITY COMPANY (LLC)?

A Limited Liability Company (LLC) are popular because owners have limited personal liability for the debts and actions of the LLC, without many of the formalities of a corporation.

For Federal Tax Purposes an LLC may be treated as a sole proprietorship, a partnership, or a corporation.

WHAT IS AN S CORPORATION?

An S Corporation is a small business corporation whose shareholders elect to have corporate income taxed like a partnership. Partnerships are taxed once. Corporations are taxed at the corporate level, then, when the income is distributed as dividends, it is taxed again at the shareholders level.

An S Corporation does not pay tax on income from daily operations. All income, losses, deductions and credits generated by an S Corp pass through to the corporate shareholders. The shareholders then report the items on their personal tax returns.

WHAT IS A CORPORATION?

Corporations are treated by the law as legal entities, that is, the corporation has a life separate from its owners and has rights and duties of its own. The owners of a corporation are known as stockholders or shareholders, and it may be worth noting, one person can be the sole shareholder of a corporation.

For the purposes of Federal Income Tax, corporations include associations, joint stock companies, and trusts as well as partnerships that actually operate as associations or corporations.

SUMMARY • Reference Materials:

• Publication 583 – Starting a Business and Keeping Records

• Publication 15 – Circular E (Employer’s Tax Guide)

• Publication538 – Accounting Periods and Methods

• Schedule C- Profit or Loss from Business

• Schedule C-EZ New Profit from Business (Sole Proprietorship

• Schedule SE – Self-Employment Tax

In summary in this lesson, I explained the purpose of:

1. An EIN (Employer Identification Number)

2. Defined the basic bookkeeping and accounting methods and terms.

3. Reviewed the different forms of business organizations.

There is a lot to learn when you start your own business and I hope that this lesson has provided you with an overview of what it takes to start your business off right.

Best Wishes on Your New Business!

CARMEN I. VELAZQUEZENROLLED AGENT,

PROFESSIONAL SERVICES

Website: http://civelazquezea.com

Business Cell Phone:

321-527-4375

Get your Free Consultation Today!