Three things to know about taxes and starting a business

Choose a business structure

When starting a business, an owner must decide what type of entity it will be. This type determines which tax forms a business needs to file. The most common forms of businesses are:

  • Sole Proprietorship

  • Partnership

  • Corporation

  • S Corporation

  • Limited Liability Company

You can find a comparison of many of the details of business structures here.

Determine business tax responsibilities

 

The type of business someone operates determines what taxes they need to pay and how to pay them. There are the five general types of business taxes.

 

Income tax – All businesses except partnerships must file an annual income tax return. They must pay income tax as they earn or receive income during the year.

Estimated taxes – If the amount of income tax withheld from a taxpayer’s salary or pension is not enough, or if the taxpayer receives income such as interest, dividends, alimony, self-employment income, capital gains, prizes and awards, they may have to make estimated tax payments.

 

Self-employment tax – This is a Social Security and Medicare tax. It applies primarily to individuals who work for themselves.

 

Employment taxes – These are taxes an employer pays or sends to the IRS for its employees. These include unemployment tax, income tax withholding, Social Security, and Medicare taxes.

 

Excise tax – These taxes apply to businesses that manufacture or sell certain products, operate certain kinds of businesses, use various kinds of equipment, facilities, or products, or engage in wagering. If you think your business might be affected, you can read more here.

 

New Mexico gross receipts tax. See more here.

Set up recordkeeping and bookkeeping systems

Being organized helps businesses owners use their time efficiently and effectively so that they can devote their time to other tasks. A good recordkeeping system means organizing source documents so that they are available when needed. A good bookkeeping is necessary for preparing tax returns. It also will give you the ability to prepare financial statements, particularly an income statement, so you can monitor progress toward your goals.

 

Also read What to know about recordkeeping.