Guide to Starting and Operating a Small Business | 2018 Guide to Starting and Operating a Small Business - Page 30

Business Taxes Understanding your tax obligations and preparing taxes can be confusing and complicated. If returns are neglected or filed improperly, penalties and excess payments may be levied. This chapter provides an overview to guide you on filing and paying the appropriate taxes. It is strongly recommended to consult with a professional on all matters pertaining to business taxes as application of rules and credits can be complicated and subject to change. Employer Identification Number (EIN) An EIN identifies the business for federal and state tax purposes. Applying for an EIN is a free service offered by the Internal Revenue Service. Beware of websites on the Internet that charge for this free service. Many financial institutions will not open a commercial banking account without an EIN. Sole proprietorships without employees are not required to have an EIN and may use the owner’s social security number for tax purposes, but a sole proprietor without employees may apply for and receive an EIN as an alternative to using a social security number especially since using a social security number could increase the chances of identity theft. An EIN must be obtained if the business pays wages to one or more employees whether set up as a partnership, a corporation for profit or nonprofit, a limited liability company, a trust or estate, or a sole proprietorship. NOTE: If an owner of a corporation provides services to (works for) the corporation, the owner is an employee of the corporation and subject to all payroll/employment taxes. An EIN is required on any return, statement, or other document if you are an employer. Individuals who file Schedule C or I must use EINs when filing excise, employment, alcohol, tobacco or firearms returns. Important notes: • If you become the new sole owner of an existing business, you cannot use the EIN of the previous owner. • An existing business that adds, opens or acquires a new operation of similar type may use its current EIN for both the existing and new operations. However, a new establishment must obtain its own EIN if its line of business is different from the existing operation. An EIN form (SS-4) can be obtained from the IRS by filing online, by fax, mail, or phone. For information and instructions on filing go to www.irs.gov/businesses/small-businesses-self-employed/how-to-apply-for-an- ein Employer Taxes Any employer of one or more persons must withhold federal, state and possibly local income taxes from the wages paid to employees. Employers are also responsible for paying into the Social Security and Medicare systems as well as withholding a matched amount from the employee’s wages. State and federal unemployment insurance payments must be paid entirely by the employer and not from an employee’s wages. For detailed information about hiring employees and your obligations, refer to the chapter entitled “Hiring Employees” starting on page 34. Self-Employment Taxes Just as employers must withhold tax and report it to various g ݙ\Y[Y[Y\]\[Y[\YY[]YX[܈Hܚ[܈[Y[\Y\ˈ[H\HۜY\Y[Y[\YYY[H\]HHYK\[\܈ٙ\[ۋZ]\H[\[܈\H\\X\[ܙHX][\؛Y][ۜY\HX[ۈ[]Y'Z[[Q[\YY8'H\[ۈYH ̋