Microenterprisesuccess.com

Note: This information is provided for educational and informational purposes only and should not be construed as tax, business or planning advice.

Check out the links below to find the answers to some of the most common questions about starting a business. Although this is information directly from the IRS (for business owners who live and/or own businesses in the United States), it’s always a good idea to check with your accountant for specific tax law and advice as it relates to your business.

Starting a Business:

Whether you are a budding entrepreneur, or an established business owner, you will find everything you need to start and manage your business venture. Starting a business could be exciting.  If you’re considering starting a business, start here. This section provides information on everything from a checklist for a new business, to selecting a business structure, and more.

Most businesses start out small. As a new business owner you need to know your federal tax responsibilities. This page provides links to basic federal tax information for people who are starting a business. It also provides information to assist in making basic business decisions. The list should not be construed as all-inclusive. Other steps may be appropriate for your specific type of business.

Is it a Business or a Hobby?

Selecting a Business Structure

Employer Identification Number (EIN)

Business Taxes

Recordkeeping

When Do I Start My Tax Year?

Selecting an Accounting Method

Checklist for Starting a Business

Establishing a Retirement Plan

Small Business Publications

What New Business Owners Need to Know About Federal Taxes

Business Taxes

The form of business you operate determines what taxes you must pay and how you pay them.

Earned Income Tax Credit
If you file a Form 1040 Schedule C, you may be eligible to claim the Earned Income Tax Credit.

e-file (Electronic Filing)
A quick, easy, smart way to get your taxes where you want them to be!

EIN
An Employer Identification Number (EIN), also known as a federal tax identification number, is used to identify tax reports to the IRS.

Electronic Payment Options
A secure way to pay your Federal taxes.

Employment Taxes for Small Businesses
If you have employees, you are responsible for several federal, state, and local taxes. As an employer, you must withhold Federal income tax withholding, social security and Medicare taxes, and Federal Unemployment Tax Act (FUTA) taxes.

Estimated Taxes
Federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. There are two ways to pay as you go: withholding and estimated taxes.

Filing Late and/or Paying Late: Information You Should Know
Before you decide not to file your tax return on time or not pay all of your taxes when they are due, consider this.

Reporting Information Returns
You business may be required to file information returns to report certain types of payments made during the year.

Self-Employment Taxes
The self-employment tax is a social security and Medicare tax for individuals who work for themselves.

Small Business Tax Calendar
This 12-month calendar is filled with useful information on general business taxes, electronic filing and paying options, business publications and forms, and common tax filing dates. Each page highlights different tax issues and tips that may be relevant to small business owners.

Where to File Addresses
Where to file addresses for businesses, tax professionals and individual taxpayers.

Which Forms Must I File?
This section provides information on which forms to file based on your business structure. It also gives you the due date for the returns.

Business Expenses:

Business expenses are the cost of carrying on a trade or business. These expenses are usually deductible if the business is operated to make a profit.

What can you deduct?

To be deductible, a business expense must be both ordinary and necessary.  An ordinary expense is one that is common and accepted in your industry or trade. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.

It’s important to separate business expenses from the following expenses:

• The expenses used to figure the cost of goods sold
• Capital expenses
• Personal expenses

Cost of Goods Sold

If your business manufactures products or purchases them for resale, you generally must value inventory at the beginning and end of each tax year to determine your cost of goods sold. Some of your expenses may be included in figuring the cost of goods sold. Cost of goods sold is deducted from your gross receipts to figure your gross profit for the year. If you include an expense in the cost of goods sold, you cannot deduct it again as a business expense.

The following are the type of expenses that go into figuring the cost of goods sold:

• The cost of products or raw materials including freight
• Storage
• Direct labor costs (including contributions to pensions or annuity plans) for workers who produce the products
• Factory overhead

Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Indirect costs include rent, interest, taxes, storage, purchasing, processing, repackaging, handling, and administrative costs.

For Businesses with Employees

As a business owner, when another person performs work for you, you must first correctly classify that person as an independent contractor or employee.

If the person is an independent contractor, refer to Forms and Associated Taxes for Independent Contractors for your tax responsibilities.

If the person is classified as an employee you must have an Employer Identification Number (EIN). Your tax responsibilities include withholding, depositing, reporting, and paying employment taxes. You must also give certain forms to your employees, they must give certain forms to you, and you must send certain forms to the IRS and SSA.

• Hiring Employees
• Part Time or Seasonal Help
• Employee Benefits
• Family Help
• Employment Taxes
• Husband and Wife Business
• Members of the Clergy
• Paying Yourself
• Recordkeeping Requirements

References, Related Topics:

• Americans with Disabilities
• Business.gov – Employment and Human Resources
• Single Member Limited Liability Companies
• SSN Verification
• Seasonal Businesses (Video, Transcript)

Operating a Business:

Recordkeeping
Unless you are a professional bookkeeper, you probably don’t like to spend valuable business time keeping records. But keeping good records can actually help you save money.

Business Name Change
Explanation for businesses on how to make a name change.

Businesses with Employees
If you operate a business and have employees, then this section has the information you will need. You will find resources on hiring, recordkeeping and other topics such as employment taxes, and wage reporting requirements.

Accounting Periods and Methods
Are you using the correct accounting method?

What is Taxable and Nontaxable Income?
You can receive income in the form of money, property, or services. This section lists many kinds of income that are taxable or nontaxable.

Filing and Paying Your Business Taxes
This section discusses business taxes you may have to pay and the forms you may have to file. It also discusses taxpayer identification numbers.

Estimated Taxes
Federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. There are two ways to pay as you go: withholding, and estimated taxes.

Business Expenses
You can deduct the cost of operating your business. These costs are known as business expenses. These are costs you do not have to capitalize or include in the cost of goods sold.

Business Tax Credits
A list of forms for claiming business tax credits, and a brief explanation about when carryovers, and credits cease.

Intangibles
Intangible Property is property that has value but cannot be seen or touched. Generally, you can either amortize or depreciate intangible property.

Changing Your Business Structure
There are tax implications related to the various types of business structures. It is also important to understand a business’ responsibilities when closing a business, selling a business, or declaring bankruptcy.

Avoiding Problems
This section provides links to resources to help the small business owner create a recordkeeping system, get the latest on the cash vs. accrual accounting methods, and tips on understanding their IRS notice, what to do if you haven’t filed a tax return, and how to recognize and avoid tax scams.

Closing a Business
There is more involved in closing your business than just locking the doors. This section provides procedures for getting out of business, including what forms to file and how to handle additional revenue received or expenses you may incur.

Small Business Resources
This section offers links to a broad range of resources across federal and state agencies, as well as links to industry-related, private sector agencies and organizations.

Small Business Tax Calendar
This 12-month calendar is filled with useful information on general business taxes, electronic filing and paying options, business publications and forms, and common tax filing dates. Each page highlights different tax issues and tips that may be relevant to small business owners.

Retirement Plans
The advantages of a retirement plan are numerous. There are economic, business and tax advantages for your business, for your employees and for you. A retirement plan may give you an important competitive edge in attracting and keeping the best employees – and help you plan for your own retirement years. The retirement plans videos are also a great resource for choosing, operating and maintaining your retirement plan.

References/Related Topics

• Recommended Reading for Small Businesses

Closing a Business:

There is more involved in closing your business than just locking the doors. This section provides procedures for getting out of business, including what forms to file and how to handle additional revenue received or expenses you may incur.

• Changing Your Business Structure
• Closing a Business Checklist
• Declaring Bankruptcy
• Sale of a Business
• Terminating a Retirement Plan
• Closing a Business (Video, Transcript)

The American Recovery and Reinvestment Act of 2009: Information Center:

Updated Nov. 6, 2009: The newly-enacted Worker, Homeownership And Business Assistance Act Of 2009 extends and expands the first-time homebuyer credit. The new law also expands the Net Operating Loss (NOL) provision.

Información en Español

Information for Individuals

Some of the provisions of the law primarily affect individuals.

• Making Work Pay Tax Credit. This tax credit means more take-home pay for many Americans. To make sure enough tax is withheld from their pay, taxpayers can use the IRS withholding calculator. See Making Work Pay for more.
• First-Time Homebuyer Credit Expands. Homebuyers who purchased in 2009 can get a credit of up to $8,000 with no payback requirement. New legislation extends and expands this credit to homes purchased by April 30, 2010.
• Money Back for New Vehicle Purchases. Taxpayers who buy certain new vehicles in 2009 can deduct the state and local sales taxes they paid or other taxes and fees they paid in states with no sales tax.
• Education benefits. The new American opportunity credit and enhanced benefits for 529 college savings plans help families and students find ways to pay higher education expenses.
• Enhanced Credits for Tax Years 2009, 2010. Find details on the earned income tax credit and the additional child tax credit.
• Increased Transportation Subsidy. Employer-provided benefits for transit and parking are up in 2009.
• Up to $2,400 in Unemployment Benefits Tax Free in 2009. Individuals should check their tax withholding.
• $250 for Social Security Recipients, Veterans and Railroad Retirees. The Economic Recovery Payment will be paid by the Social Security Administration, Department of Veterans Affairs and the Railroad Retirement Board.
• Energy Efficiency and Renewable Energy Incentives. See what individuals can do to reap tax rewards.
• COBRA. Workers who lose their jobs may qualify for reduced COBRA health insurance premiums for a period of up to 15 months. Visit the U.S. Department of Labor’s COBRA Web site, www.dol.gov/cobra, for details on this recently-extended and expanded subsidy.
• Health Coverage Tax Credit. The credit increases from 65 percent to 80 percent of qualified health insurance premiums, and more people are eligible.

Information for Businesses

Some of the provisions of the law primarily affect businesses.

• Making Work Pay Tax Credit. The 2010 withholding rates, contained in Notice 1036, reflect reduced withholding as directed by the ARRA. An optional withholding procedure is available for pension plan administrators.
• Work Opportunity tax credit. This newly-expanded credit adds returning veterans and “disconnected youth” to the list of new hires covered by the credit that businesses may claim.
• COBRA: Health Insurance Continuation Subsidy. The IRS has extensive guidance for employers, including an updated Form 941, as well as information for qualifying individuals.
• Energy Efficiency and Renewable Energy Incentives. See what businesses can do to reap tax rewards.
• Net Operating Loss Carryback. Small businesses can offset losses by getting refunds on taxes paid up to five years ago.Information on the carryback, an expanded section 179 deduction and other business-related provisions, is now available.  The Worker, Homeownership And Business Assistance Act Of 2009 (WHBAA) further expands the five-year NOL carryback to most businesses.
• Municipal Bond Programs. There are new ways to finance school construction, energy and other public projects.

2008 and 2009 Tax Returns

The law could affect some 2008 tax returns due in 2009. However, most of the changes in ARRA will affect 2009 individual tax returns due April 15, 2010.

Related Items:

• IRS news releases, multimedia and legal guidance
• Marketing products for partners
• Summary of the key provisions from the Senate Finance and House Ways and Means committees

Tax Information For Partnerships

2008 Changes to Form 1065 – Frequently Asked Questions Form 1065 has a number of changes for 2008. For example, Schedule B and Schedule K-1 require reporting of ownership percentages. The FAQ page on Form 1065 changes offers helpful examples. Extension Due Date for Most 2008 Partnership Returns is September 15, 2009 Only a 5-month extension is available for 2008 partnership returns filed in 2009. See 2008 Form 1065 instructions page 4 “When to File” and the instructions to 2008 Form 7004 Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and other Returns. Forms 1120 and 1065 and Related Schedules and Instructions for 2008 Forms 1120 and 1065, and several related schedules and instructions, released July 2008 for public comment, are now final. Changes to the forms increase the transparency of the relationship between entities that make up complex business enterprises. Schedule M-3 for Certain Form 1065 Partnership Returns Schedule M-3, “Net Income (Loss) Reconciliation for Certain Partnerships”, will be filed starting with tax years ending on or after December 31, 2006. Partnership – Audit Techniques Guide (ATG) The focus is on issues that fall within sections 701 through 761 of the Code (Subchapter K). Subchapter K deals primarily with the formation, operation, and termination of partnerships. Many issues arise during the initial or final year of the partnership. Starting a Business If you’re considering starting a business, then start here. This section provides links to everything from a checklist for a new business to selecting a business structure and more. Partnership Income or Loss A partnership computes its income and files its return in the same manner as an individual. However, certain deductions are not allowed to the partnership. Notification of Possible Filing Requirement This reminder is being issued to alert partnerships that they may have an additional filing requirement with the Internal Revenue Service related to a foreign partner(s) on their partnership return. Modernized e-file (MeF) for Partnerships This web site provides an overview of electronic filing and more detailed information for those partnerships that prepare and transmit their own income tax returns using MeF. Partnerships that rely upon third party tax professionals to prepare and transmit their tax returns should consult their tax professional. Partnerships A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Extension of Time to File Your Tax Return Need more time to prepare your federal income tax return? This page will direct you to information on how to apply for an extension. Publicly Traded Partnerships This page contains information related to publicly traded partnerships that have effectively connected income, gain, or loss and who must pay withholding tax on any distributions of income made to its foreign partners. Tax Information For Corporations 2008 Changes to Form 1065 – Frequently Asked Questions Form 1065 has a number of changes for 2008. For example, Schedule B and Schedule K-1 require reporting of ownership percentages. The FAQ page on Form 1065 changes offers helpful examples. Abusive Tax Shelters and Transactions The Internal Revenue Service has a comprehensive strategy in place to combat abusive tax shelters and transactions. This strategy includes guidance on abusive transactions, regulations governing tax shelters, a hotline for taxpayers to use to report abusive technical transactions, and enforcement activity against abusive tax shelter promoters and investors. Additional Guidance on IRC Section 168(k)(4) Election to Accelerate Research Credits A taxpayer with a taxable year end of June 30, is allowed the option provided by section 3.02(1)(a)(i)(I) and (II) of Rev. Proc. 2009-16 if such taxpayer files its original federal income tax return for such taxable year on or before March 11, 2009, consistent with the option available to a taxpayer who files its original federal income tax return after March 11, 2009. Alternative Motor Vehicle Credit The Alternative Fuel Motor Vehicle Credit was enacted by the Energy Policy Act of 2005 and includes separate credits for four distinct categories of vehicles: Hybrid vehicles, Fuel Cell vehicles, Qualified Alternative Fuel Motor vehicles (QAFMV) and Advanced Lean Burn Technology vehicles. The amount of the potential credit varies by type of vehicle and which of the four credits applies. Appeals The Appeals Office resolves tax controversies, without litigation, on a basis that is fair and impartial to both the Government and the taxpayer. Application of Posted 1065 FAQ Answers to Similar Form 1120 Questions Posted 1065 FAQ answers regarding ownership reporting for Form 1065 Schedule B questions 3 and 4 may be applied to similar issues in reporting ownership for Form 1120 Schedule K questions 4 and 5. Both sets of questions require a limited application of section 267(c) attribution rules to determine total ownership percentages, direct or indirect. Corporate Executive Compliance The Internal Revenue Service is taking steps to improve tax compliance by corporations and their executive employees. One area of emphasis is executive compensation, for which audit technique guides have been developed for use by agents in examining tax returns filed by corporations and executives. e-file for Large and Mid-Size Corporations Certain large and mid-size corporations are required to electronically file their Forms 1120 and 1120S. Other corporations may do so voluntarily. This site provides e-file information for corporations that prepare and transmit their own electronic corporate income tax returns and those that use the services of third party tax professionals. FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” FIN 48 is intended to eliminate inconsistency in accounting for uncertain tax positions in financial statements certified in accordance with U.S. GAAP and mandates new rules for recognition, de-recognition, measurement, and disclosure of tax positions. Fast Track Settlement The LMSB / Appeals Fast Track Settlement program is a joint effort between the Large and Mid-Size Business (LMSB) Division and Appeals to use the mediation skills and delegated settlement authority of Appeals to resolve issues while still under LMSB jurisdiction. Filing Requirements for Filing Status Change (revised 03-12-09) Guidance for taxpayers requesting to change their filing status from a C Corporation (filing Form 1120) to an S Corporation (filing Form 1120S). Forms 1120 and 1065 and Related Schedules and Instructions for 2008 Forms 1120 and 1065, and several related schedules and instructions, released July 2008 for public comment, are now final. Changes to the forms increase the transparency of the relationship between entities that make up complex business enterprises. Forms 5471 – Automatic Assessment of Penalties under IRC Section 6038(b)(1) Beginning January 1, 2009, the Internal Revenue Service Center will automatically assert appropriate penalties on late filed Forms 1120 with Forms 5471 attached. Taxpayers are encouraged to submit delinquent Forms 5471 prior to January 1, 2009. Income from Abroad is Taxable There have been recent reports about the interest of the Internal Revenue Service (IRS) in taxpayers with bank accounts in Liechtenstein. The IRS’ interest, however, extends beyond bank accounts in Liechtenstein to financial accounts anywhere in the world. The IRS reminds you to report your worldwide income on your U.S. tax return and lists the possible consequences of hiding income overseas. Index of LMSB Industry Overviews The LMSB Industry Overview Series, designed to provide LMSB employees greater awareness of various industries, contain information on industry background, trends, and terms, accounting principles, information systems, industry operating procedures, government regulatory requirements, significant law and important issues and industry resources. Industry Issue Resolution Program The Industry Issue Resolution (IIR) Program resolves frequently disputed or burdensome tax issues. IRS solicits suggestions for issues for the program from taxpayers, representatives and associations. International Businesses Provides links to information on a variety of International topics including Tax Treaties, Know-Your-Customer (KYC) Rules, Transfer Pricing and Qualified Intermediaries (QI). International Withholding Designated Tier I The IRS has designated as a Tier I Compliance Issue “Reporting and Withholding on U.S. Source FDAP Income” under IRC 1441. The focus of compliance improvement will be on withholding agents’ obligations to withhold and report to IRS. IRS Issues Final Versions of 2007 Form 1120-F and New Schedule M-3 (1120-F) The Internal Revenue Service has released final versions of the revised Form 1120-F, U.S. Income Tax Return of a Foreign Corporation, for tax year 2007, and related schedules, including Schedule M-3, new for tax years ending on or after December 31, 2007. Issue Tiering – LMSB LMSB’s Issue Tiering issue management strategy promotes consistency in issue resolution, improves currency, increases coverage of non-compliant taxpayers, and provides greater oversight and accountability for important issues. LMSB Technical Resources and Guidance Coordinated issue papers, Industry Director guidance, audit technique guides and other documents provide technical information and guidance on complex tax law and administrative issues affecting the LMSB division and LMSB taxpayers. Pre-Filing Agreement Program The Pre-Filing Agreement Program is expected to reduce taxpayer burden and make more effective use of IRS resources by resolving or eliminating tax controversy earlier in the examination process. S Corporations An eligible domestic corporation can avoid double taxation (once to the shareholders and again to the corporation) by electing to be treated as an S corporation. Schedule M-3 for Large and Mid-Size Businesses Schedule M-3 is used by certain corporations and partnerships to reconcile financial accounting net income and taxable income. Affected corporations and partnerships are those with assets of $10 million or more that file Form 1120, 1120-PC, 1120-L, 1120S, or 1065. Certain other partnerships filing Form 1065 are also required to use the Schedule M-3. Small Business/Self-Employed (SB/SE) Division This division serves businesses with less than $10 million in assets. The International Tax Gap Find resources on this page pertaining to the international tax gap — the difference between the amount of tax that taxpayers should pay and the amount that is paid voluntarily and on time. The tax gap can also be thought of as the sum of non-compliance with the tax law. Understanding the Large and Mid-Size Business (LMSB) Examination Process This comprehensive guide gives detailed information about the entire examination process for large and mid-size businesses, from the multiple steps of the pre-audit planning process to the examination of books and records through the closing and Appeal processes. U.S./Germany Tax Treaty Modified to Include Mandatory Arbitration in Certain Circumstances A new Protocol modifying certain provisions of the income tax treaty between the U.S. and Germany came into force on Dec. 28, 2007. It modifies Article 25 Mutual Agreement Procedure (MAP) to provide for mandatory arbitration of certain cases in the MAP. This announcement provides interim guidance for the “commencement date” for MAP case arbitration until a formal mutual agreement is published.

Tax Information For International Businesses

Servicewide Approach to International Tax Administration IRS has developed a comprehensive approach for improving international customer service and compliance with international tax laws. The approach involves all IRS business units and provides a framework for how the IRS will deal more effectively with international tax issues. IRS Issues Final Versions of 2007 Form 1120-F and New Schedule M-3 (1120-F) The Internal Revenue Service has released final versions of the revised Form 1120-F, U.S. Income Tax Return of a Foreign Corporation, for tax year 2007, and related schedules, including Schedule M-3, new for tax years ending on or after December 31, 2007. The International Tax Gap Find resources on this page pertaining to the international tax gap — the difference between the amount of tax that taxpayers should pay and the amount that is paid voluntarily and on time. The tax gap can also be thought of as the sum of non-compliance with the tax law. Foreign Athletes and Entertainers A cross-functional Issue Management Team has a three pronged approach directed towards foreign athletes and entertainers. Pacific Association of Tax Administrators Issues Guidance on the Mutual Agreement Procedure and Bilateral Advance Pricing Arrangement Processes IR-2004-83 — Pacific Association of Tax Administrators has finalized internal operational guidance with respect to mutual agreement procedures (MAP) and bilateral advance pricing arrangements (BAPA). News and Events This section provides the latest news on international taxes. Classification for U.S. Tax Purposes This section will help you determine if you are a “Foreign Person” or a “United States person” for U.S. Tax purposes Essential Concepts of International Taxation The income sourcing rules determine which income is taxable to a foreign person and which income qualifies for the foreign tax credit and the earned income exclusion of US persons. Competent Authority Assistance If you are a U.S. citizen or resident, you can request assistance from the U.S. competent authority if you think that the actions of the United States, a treaty country, or both, cause or will cause a tax situation not intended by the treaty between the two countries. Competent Authority Agreements A Competent Authority Agreement is a bilateral agreement between the United States and the treaty partner to clarify or interpret treaty provisions. Tax Treaties Tax treaties may allow residents of foreign countries to be taxed at a reduced rate, or be exempt from U.S. income taxes on certain items of income they receive from sources within the United States. Taxpayer Identification Numbers (TIN) A Taxpayer Identification Number (TIN) is an identification number used by the Internal Revenue Service (IRS) in the administration of tax laws. Tax Withholding This section covers tax withholding topics for U.S. citizens or resident aliens employed in U.S. provinces or overseas. Transfer Pricing Provides information about initiatives relative to the issue of transfer pricing. Advance Pricing Agreement Program The APA Program provides an alternative dispute resolution mechanism for taxpayers and the IRS to resolve complex international transfer pricing cases. Qualified Intermediaries (QI) A Qualified Intermediary (QI) is any foreign intermediary (or foreign branch of a U.S. intermediary) that has entered into a qualified intermediary withholding agreement with the IRS. A QI is entitled to certain simplified withholding and reporting rules. List of Approved KYC Rules Provides a list of countries that have submitted KYC rules and links to Country Specific Attachments. International IRS Offices International IRS Office locations and contact numbers. SOI Tax Stats – International Business Tax Statistics Find statistics for both inbound and outbound international corporate activities here. There’s also information on specialized areas covering foreign trusts, international boycotts, and more. Income from Abroad is Taxable There have been recent reports about the interest of the Internal Revenue Service (IRS) in taxpayers with bank accounts in Liechtenstein. The IRS’ interest, however, extends beyond bank accounts in Liechtenstein to financial accounts anywhere in the world. The IRS reminds you to report your worldwide income on your U.S. tax return and lists the possible consequences of hiding income overseas. Help for Foreign Athletes and Entertainers The Internal Revenue Service (IRS) recently released Form 13930, Application for Central Withholding Agreement (CWA). Forms 5471 – Automatic Assessment of Penalties under IRC Section 6038(b)(1) Beginning January 1, 2009, the Internal Revenue Service Center will automatically assert appropriate penalties on late filed Forms 1120 with Forms 5471 attached. Taxpayers are encouraged to submit delinquent Forms 5471 prior to January 1, 2009. Mandatory Tax Treaty Arbitration The competent authorities of the U.S. and Germany recently signed an arrangement to provide guidance for operating the arbitration procedure that went into force on December 28, 2007. Additionally, the competent authorities prepared guidelines for operating the three-person arbitration boards.