Which Business Tax Return Do I File?
From Tax Guide.
Tax Guide · Arab, Alabama
Starting a Business: Tax Checklist for New Owners
A plain checklist of the tax steps for starting a business: choosing a structure, getting an EIN, opening accounts, and knowing what you will owe and file.
The short answer
What taxes do I need to think about when starting a business?
When you start a business you generally take on income tax, self-employment tax, possibly payroll and sales taxes, and a set of records you need to keep from day one.
The exact mix depends on what you sell, how you organize the business and whether you hire anyone. Sorting it out early is much easier than fixing it later. This checklist walks through the usual steps in order, so you know what to ask and who to ask.
- Choose a business structure
- Get an EIN if you need one
- Open a separate business bank account
- Set up a bookkeeping method
- Plan for estimated taxes
- Learn what licenses, sales tax and payroll may apply
Structure
Which business structure should I choose for tax purposes?
Most new owners choose a sole proprietorship, a partnership, an LLC or a corporation, and each is taxed in its own way.
A sole proprietor reports business income on Schedule C of the personal return. Partnerships file their own information return, and LLCs follow the default rules of one or several owners unless they elect otherwise. Corporations are taxed as separate entities. The right choice depends on liability, taxes, cost and your plans, and it deserves a real conversation.
Our guide to business tax return types shows which return goes with each structure. If you are leaning toward an LLC, read how LLCs are taxed in Alabama. Forming the entity itself is done through the state, and that is not something our office does, but we can talk through how it fits the tax side.
EIN
Do I need an EIN for my new business?
An EIN, or Employer Identification Number, is the IRS number that identifies a business, and you generally need one if you have employees, file certain returns or operate as a partnership or corporation.
Some sole proprietors without employees can use their Social Security number, but many still get an EIN to keep that number off forms and to open a business bank account. Apply directly with the IRS through its official website. Beware of look-alike sites that charge to apply for you.
Never give your Social Security number to anyone who contacts you unexpectedly claiming to help with an EIN. If you are unsure, call the office.
Money
Should I open a separate bank account for my business?
Yes, a separate business account is one of the simplest and most useful steps, because it keeps business and personal money from mixing.
When everything runs through one account, sorting out what is deductible takes hours, and it makes a mess if you are ever asked to prove a number. A separate account, combined with a simple system for receipts, makes tax time far easier. Our guide to receipts and expense tracking has practical habits.
Choose a bookkeeping method early on, whether a spreadsheet, software or a bookkeeper. Consistent records are the base for every return that follows.
Paying taxes
What taxes will my new business owe?
A new business may owe income tax, self-employment tax, employment taxes if it has staff, and sometimes sales tax, all depending on what it does.
Because nobody withholds tax from your business income, owners generally make estimated payments through the year. See estimated quarterly taxes for how that works. Some startup costs can be deducted or spread over time, and the rules depend on the type of cost, so keep your receipts.
Alabama has its own taxes and registrations, which can include business privilege tax, state withholding and sales tax, depending on the business. The Alabama Department of Revenue is the right place to confirm which apply. We explain how they fit with your federal picture.
Local rules
What licenses and registrations does a new business need in Alabama?
Many businesses need a city or county license, and some professions or products need more, so check locally before you open.
Requirements vary by location and industry. Your city hall or county office can usually tell you about a business license, and the state can tell you about anything regulated at that level. These steps are outside tax preparation, but they affect your taxes because they can create filing and payment duties.
Some Alabama cities and counties also have their own occupational taxes, which matter once you hire. If you plan to hire, see hiring your first employee.
How we can help
How Melton Tax Services can help new business owners
We can help new owners plan for the tax side of a startup through our tax planning and consulting service, then prepare the returns.
Our tax planning service helps you think through structure, estimated payments and record keeping before problems appear. When it is time to file, our income tax preparation covers your business and personal returns.
We serve Arab and the surrounding area. Call 256-586-4635 or use our contact page. Bring your paperwork to the office, and please do not send Social Security numbers or documents through the website.
Answers
Questions about new business checklist
Do I have to file taxes in my first year if I made no money?
Not always, but it depends on your situation, and a loss can still be worth reporting. Keep records from the first day, and ask before you decide not to file.
Can I deduct my startup costs?
Some startup costs can be deducted or spread over time, and others cannot. The rules depend on the type of cost, so keep every receipt and ask us how they apply.
Do I need an EIN if I am a sole proprietor?
Not always. You need one if you hire employees or file certain returns, and many owners get one anyway for privacy and banking. You apply with the IRS directly.
Should I register my business before or after I start earning?
Requirements vary, but it is usually better to sort out licenses and structure before you start taking customers. Your city, county and the state can tell you what applies.
When should I start paying estimated taxes?
Once your business is earning income and no one is withholding tax on it, you generally begin making estimated payments. Whether you owe depends on your total tax picture.
Do I need a bookkeeper right away?
Not necessarily, but you do need consistent records. A simple system can work at first, and many owners bring in help as volume grows.
Read next
Related reading
How Are LLCs Taxed in Alabama?
From Tax Guide.
Estimated Quarterly Taxes: Who Pays and How It Works
From Tax Guide.
How to Track Business Expenses and Receipts
From Tax Guide.
Tax Planning
A service Melton Tax Services provides.
Melton Tax Services
Questions about your taxes or your business?
Our team in Arab is just a phone call away, and we are glad to talk it through with you.