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|Posted on November 13, 2016 at 8:29 PM|
As a new investor there are a number of things you need to consider when setting up your business. It is important that you set it up correctly.
1. It is possible to do a few investor deals before you set up a business entity (LLC, S-corporation, or C-Corporation). If you do not have an entity set up you will report your business transactions on a Schedule-C tax form, as a sole proprietorship.
2. There is more than one type of tax on a business. There are four general types which include income tax, excise tax, employment tax and self-employment tax. The type of business you operate and how you set it up will determine what types of taxes you will pay and how you will pay them.
3. Generally you will need an Employer Identification Number (EIN) even if you do not have any employees. The bank wants this number when you set up your business account. If you do not have the EIN number you will have to give the bank your Social Security Number. If you are working as a sole proprietor you do not have to get an EIN number. It is very easy to get an EIN number. Just go onto the IRS.gov website and fill out the form. You will get the number immediately.
4. Keeping good records cannot be overstressed. Good records will save you a lot of money when it comes tax time. In fact, the more you know about taxes the better records you will keep because you understand why you are keeping the records. Even if you are not good at keeping records, Do Not Throw Anything Away! Keep all receipts, even if you only put them in a shoebox and sort through them later. Write little notes and put them the in shoebox also.
5. Every business and every person have to file taxes at least once a year. You may need to file taxes every three months (estimated tax). This is generally the calendar year (January - December). If you have employees you have to pay taxes every time you pay the employees (even if you are the only employee). You do not have to be classified as an employee if you are a sole proprietor and have no employees. When you do have a few employees it is much easier to get an agency that can do that entire employee tax stuff for you. All the details can drive you crazy and keep you from making real money.
6. There are several types of accounting methods. You will need to decide which method you will use. One method is "cash method". In the cash method, for tax purposes, when (the year) you spend the money is the year that it is included in your taxes (income and expenses). The 2nd method is the "accrual method". In this method you deduct the expense when it is really used. Example, if you pay for insurance for 2 years, the deduction will be taken when the insurance is used. You need to do the same method every year. The IRS wants to know if you change your accounting method. Every year there is a question on the IRS form as to if you changed your accounting method.
7. The Economic Substance Doctrine - This is a new revised issue from the IRS. Basically it says that you can't change your business structure just because it will help your tax position. You need to have a real business reason for changing your business. This is why it is even more important that when you set up your business entity and cash or accrual method of accounting. As far as I can find out this doctrine does not apply to a sole proprietorship.
Learn all you can about how taxes will affect you and your new business at http://www.NewTaxChanges4Investors.com/blogTo learn more check out http://www.NewTaxChanges4Investors.com S. Reid PhD
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Categories: Rental Property Management