Imagine your business progressing in the near future. Your plans are executed, strategies carried out, and clients knocking on your door. In other words; business is good. However, during this time of accomplishment and accelerated performance, the IRS contacts you. Your heart sinks as they explain the fees and payments your business owes because you failed to stay compliant. Maybe you failed to file your taxes or missed your quarterly payments. These repercussions can cause enormous fees and ridiculous headaches. Here are some tips to stay compliant with the IRS and prevent these calls from coming.
EIN Number
Let’s start from the beginning. An EIN (Employer identification Number) also known as federal tax identification, is used to identify a business entity. Your entity must be a sole proprietorship, Limited Liability Company (LLC) Multi-member LLC, S-Corporation, C-Corporation. Creating an entity protects your personal assets from any business liability.
Separate Your Personal & Business Bank Accounts
Your business has different transactions which means your financial world has to shift. You have transactions coming in from your personal life and your business. All small business owners should open a new business bank account to separate these transactions. This should be the first step in your small business plan. There is two main purposes for doing so:
- Maintain the legal liability separation between you and your business. Just as your entity protects your personal assets, separating your personal and business bank accounts will not be subject to any personal lawsuit. The idea is that the business is separate from you.
- The second purpose is for organization. It is easier for your accountant when all your business activity is located in one account.
Understanding Small Business Taxes
Now that you own a business, you no longer can just file the 1040ez where you just have a W2 and get to use the simple forms. Obviously you now have this business activity to report. Depending on your entity type, you will be reporting your activity on your taxes differently.
- SMLLC: Schedule C on your 1040
- MMLLC/S-Corp: Separate tax return – 1065/1120s
- C-Corp: Dividends and W2 wages
These taxes are due March 15 or April 15th depending on the entity type. Click here for an in-depth video on entity types and taxes.
Estimated Tax Payments
Another way to stay compliant is making quarterly payments. If your business is earning significant income, the IRS requires business owners to make quarter estimated payments. Now at the end of the year, your business will not have to pay a large sum. If you fail to make quarterly payments, there will be a small fee. A good rule to follow is to set aside 20% of your net profit for quarterly taxes. The best way to pay is through the IRS Direct Pay Website. Click here for an in-depth video regarding quarterly taxes.
Hire An Accountant
An accountant will keep your business compliant with the IRS. They know the rules and regulations regarding tax law and compliance. Here at Mazuma, our service provides small businesses to stay organized, stay compliant and stay organized. Our accountants will keep your business organized and up to date. Our bookkeepers will keep track of your expenses and deductions so you can save on taxes. So focus on your business so we can focus on your accounting. Click here to try Mazuma for free for 30 days.
Staying complaint with the IRS means to follow simple rules. Don’t allow the IRS to contact and charge you fees. Apply for an EIN, separate your personal and business bank accounts, understand tax filings, estimate your quarterly payments and hire an accountant. Click here to see how Mazuma can help your business stay compliant, stay organized, and save on taxes.
