Starting a Business? Here Are the Tax Steps Every New Business Owner Should Know

Starting a business is an exciting milestone, but before opening the doors or launching a website, entrepreneurs need to understand the tax responsibilities that come with business ownership. Making the right decisions early can help avoid costly mistakes and set the foundation for long-term success.

According to recent guidance from the IRS, choosing the proper business structure and establishing good tax practices from the start are among the most important steps new business owners can take.

1. Choose the Right Business Structure

One of the first decisions a business owner must make is selecting a business entity. The structure you choose affects how your business is taxed, the forms you'll file, and your legal responsibilities.

Common business structures include:

• Sole Proprietorship – An unincorporated business owned by one individual.

• Partnership – A business owned by two or more individuals.

• C Corporation – A separate legal entity owned by shareholders.

• S Corporation – A corporation that passes income, deductions, and credits through to shareholders.

• Limited Liability Company (LLC) – A flexible structure recognized by state law that may offer liability protection and tax options.

  
  

Each structure has unique tax implications, so consulting with a tax professional before making a decision can help ensure the business is set up correctly from day one.

2. Select a Tax Year

Every business must establish a tax year for reporting income and expenses.

Most businesses choose one of two options:

• Calendar Year – January 1 through December 31.

• Fiscal Year – A 12-month period ending on the last day of any month other than December.

  
  

The right choice often depends on the nature of the business and operational needs.

3. Obtain an Employer Identification Number (EIN)

An Employer Identification Number (EIN) serves as a business's federal tax identification number. Many businesses need an EIN even if they do not have employees.

An EIN is commonly required to:

• Open business bank accounts

• Apply for business financing

• File tax returns

• Establish business credit

  
  

The IRS allows businesses to obtain an EIN online at no cost.

4. Complete Required Employee Forms

If a business plans to hire employees, there are important onboarding forms that must be completed and maintained.

These include:

• Form I-9 – Employment Eligibility Verification

• Form W-4 – Employee's Withholding Certificate

  
  

Proper documentation helps businesses remain compliant with federal employment requirements.

5. Understand Tax Responsibilities

The type of business entity determines which taxes must be paid and how those taxes are reported.

Depending on the business structure, owners may need to manage:

• Income taxes

• Employment taxes

• Self-employment taxes

• Estimated tax payments

• Excise taxes (for certain industries)

  
  

The IRS also offers digital tools such as Business Tax Account to help eligible businesses manage tax records and information online.

6. Research State and Local Requirements

Federal tax obligations are only part of the equation. New business owners should also review state and local requirements, which may include:

• Business licenses

• Sales tax registration

• State employer taxes

• Industry-specific permits

  
  

Requirements vary by state, so it's important to verify obligations before beginning operations.

7. Build Good Recordkeeping Habits Early

Successful businesses maintain accurate records from the beginning. Organized bookkeeping can help owners:

• Track income and expenses

• Prepare accurate tax returns

• Identify deductions and credits

• Make informed business decisions

• Respond to IRS inquiries if needed

  
  

Good records are one of the most valuable tools for managing a growing business and avoiding tax-season stress.

How MyTAXPrepOffice Can Help

As your clients launch new businesses, they'll need reliable tax guidance and support.

MyTAXPrepOffice provides tax professionals with the tools they need to efficiently prepare returns, manage client data, and deliver expert service throughout the year.

Whether your clients are forming an LLC, applying for an EIN, or preparing their first business tax return, helping them understand these foundational tax requirements can set them up for long-term success.

Final Thoughts

Starting a business involves much more than a great idea. Choosing the right entity, obtaining an EIN, understanding tax obligations, and maintaining accurate records are essential first steps for any entrepreneur.

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Disclaimer: This article is for informational and educational purposes only and does not constitute legal tax advice. Advanced Tax Solutions is not liable or responsible for any damages resulting from or related to your use of this information. It is your responsibility to refer to official IRS documentation for information regarding any tax laws or tax information shown here.