With the economy being lousy (oh come on now, you all don’t think things are rosy just because people tell you they are do you?), a lot of people are trying to get their own business going. If you look through my site you will see a lot of articles about starting up a business.
The important thing that people tend to miss when they start their own gig is that they don’t take into account income and state taxes. In the current economic Depression we are in, that is a mistake. The reason is that government is in a Depression like we are and they need money. We should expect that tax agencies are beefing up their enforcing divisions and they make no bones about telling us that they are going to be cracking down on us.
So what will they be looking for and what are things that you, as a business person should do or have in order to stay compliant?
1. Make sure that you pay your quarterly income taxes for your business.
This may be obvious but there are people who because of the economy may decide to “miss a payment” in order to get it caught up later on. That isn’t going to fly too well with the Fed and in a lot of states, like California, where they are really hurting and are changing quarterly tax payments, you will have to prepay as a front load to match the fiscal periods for the state. That means that the states file their reports and statements on a different period than the calendar period and they want to show that they are getting their income in faster.
2. Make sure that you have your state sales tax collected, any business tax paid and remitted in accordance with your business laws.
If you are in a gig that is selling something and collecting sales tax, make sure that if you are paying annually that you get your payment in annually. If you pay quarterly, get the money in then. For a lot of business taxes you basically are prepaying it a year in advance or when you start business. That means that if you are starting a business say this October, you might pay a business tax in October and again in January. If your business is seasonal and the holidays in winter are your peak, I would bite the bullet and do it, otherwise I might think about starting the gig in January. Of course if you need to make money to start covering expenses and bills, get started as soon as you can and get your taxes paid.
3. Keep a separate account to handle your taxes and don’t touch it. Don’t be like the government is when they put tax money aside and dip into it for other projects. That is what happened to our social security program. The program was suppose to be rock solid and the funds not touched and it has been dipped into. The earthquake fund for Callifornia is pristine and I hope it stays that way. California learned the hard way that earthquake repairs cost a lot even if you have insurance.
The money you collect for paying business and sales tax will be there and after awhile it will be automatic in making payments.
4. Get whatever special permits you need, pay the registration and stay current.
If you are making bread, you may need a business license as well as a separate permit for cooking. If you are doing something dangerous like disposing toxic waste, there are higher safety standards that apply and you probably know all about them already if you are in the haz mat (hazardous materials) business.
Getting the idea?
These are the sort of things that you need to have in place. It also tends to be the same in other countres and if you are doing international business, that leads to number 5 in our list:
5. Learn other nations tax laws and comply where appropriate if you are doing international business.
If there are reciprocal tax treaties with the United States you may get tax credit for taxes paid to other countries at tax time here in the U.S. You need to check with a good tax professional (and I have researched a lot of tax treaties for clients) to make sure that everything is in compliance and you don’t get shut down one year after you have started because you haven’t paid taxes.
6. If you are required to collect employment taxes for your staff and pay them, do it and don’t skimp. Payroll tax issues are important and get overlooked.
Remember about collecting that money and not spending it we just discussed? Make sure that you do this for employee payroll taxes if you have people working for you. Make sure that you if you aren’t handling the payrolls yourself that you have a competent bookkeeper or payroll processing company that has had experience in staying current with tax law changes and handling payments promptly.
7. Stay current with tax tables – especially at the state level.
One of the biggest problems I have seen on people’s W-2s is where the employer has failed to update the state income tax tables and has either been withholding too much or too little. Have your bookkeeper check to make sure thay are current or add a reminder in your computer’s Outlook or memo system of choice. If you do everything by cell phone or Blackberry, make sure that you click on the calendar and add a reminder to check for tax updates for Fed, State, County, etc there or wherever you can find it easiest. It will make things easier for you and keep you in compliance as your business takes off and grows.
Sep 19 2009
Have a great time everybody and for those of the people celebrating either New Year’s or their own holidays, make the seasons ahead bring you peace, joy, happiness, good health and prosperity. For information about my books please go to my home page or Amazon and you can see the selection for what I have on sale there. There is something there for everybody.
Kim Isaac Greenblatt
Tax Issues In Business Start Ups
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