The IRS wants to educate new small business owners about their federal tax responsibilities. “Understanding and meeting their tax filing requirements is one of the biggest challenges faced by people starting out in business,” says the head of the IRS Small Business Division.
Among the common tax issues that can trip up new business owners:
* Classification of workers. Determining whether workers are employees or independent contractors is a matter of law, not the choice of the worker or the employer.
* Federal employment tax deposits. Called trust fund taxes, these deposits must be made according to the appropriate schedule, depending on deposit amounts.
* Quarterly estimated tax payments. Business earnings are not subject to tax withholding; therefore, the owner’s income and social security tax obligations are met through quarterly estimated tax payments.
* Recordkeeping. New businesses need a good recordkeeping system to make tax filing easier and accurate.
* Disaster protection. Financial and tax records need to be protected to ensure business continuity in the event of a disaster.
* Tax scams. New business owners should be alert to the prevalence of abusive tax avoidance schemes. Falling victim to one of these schemes could result in serious tax problems.