February 24, 2010
Editor’s Note: This article was written by Bob Meighan, CPA and Vice President of Intuit’s Consumer Tax Group. Meighan is the past chairman and current member of the Electronic Tax Administration Advisory Committee. Meighan has been featured on ABC News, CNBC, CNN, Bloomberg Radio, and countless local and national television and radio programs, as well as contributing tips and information to the Wall Street Journal and New York Times. Follow Bob on Twitter at: @TurboTaxBob.
The job market has thrown millions of Americans looking for a job a curve ball. The result is that many have taken matters into their own hands. When you’re heading out on your own to embark on a new business venture, startup, or freelancing gig, the last thing on your mind is probably taxes. However, there are a few things you should know to make sure you’re making the most of deductions and credits, and keeping your ducks in a row all year long so tax time doesn’t keep you from doing what you do best – pursuing your dreams.
Here are five tax tips to keep your financial path down entrepreneurship lane clear of roadblocks.
- Determine what type of business entity you want – When you start a business, you can operate as a sole proprietor or as a business. Business entities include partnership and corporation and variations on these entities. There are tax and non-tax advantages and disadvantages for each type of organization. Check with your business advisor to determine which one is best for your needs. Once you figure that out, you may then also have to draw up a partnership agreement or articles of incorporation. This is where a good lawyer comes in handy.
- Select an accounting program – Running your own business means you need to keep your personal finances separate from your business ones. Not only will you want a separate checking account and credit card for your business, but you’ll also need to select an accounting program. While there are many from which to choose, the vast majority of small business owners use QuickBooks. QuickBooks makes accounting easy even if you’ve never done accounting. It’s fast and easy, thus leaving you more time to do what you do best – make money for your business.
- Check local regulations – Don’t overlook many of the rules and regulations local jurisdictions impose on businesses. They may include licensing requirements, fees, restrictions on where you can conduct business, and reporting.
- Employer Identification Number – Most businesses need an employer identification number (EIN) to do business. You can apply here online at no charge. Check with your state for similar requirements.
- Tax software – Doing your business taxes is not much different than doing your personal income tax return. TurboTax has software for all types of businesses. If you’re a sole proprietor, I recommend TurboTax Home & Business because it walks you through all the deductions and credits that are available for those running their own business. If you set your business up as a corporation or partnership, then TurboTax Business is the answer for you. Just like the TurboTax 1040 product you may be familiar with, TurboTax Business uses an interview to solicit answers to questions and puts those numbers on the right forms and does all the math for you. You can be sure you’ll get every deduction and credit to which you’re entitled.
In a subsequent article, we’ll talk about what specific tax write-offs and credits are available to you. We’ll also focus on the unique needs of freelancers, who seem to be the majority of those entering the business world. In the meantime, visit the TurboTax Blog for tax news, tips and tricks. Good luck!
Photo attribution: Tax by Definition by Alan Cleaver
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