IRS Small Business Information
After facing countless rejections, months without employment and a recession that just doesn't seem to go away, the choice to start a small business has become very attractive to millions of Americans. The business plan for many is what slows down the process and momentum, but setting up a company according to the Internal Revenue Service's small business standards is now a lot easier than anyone may think.
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Business or Hobby
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Evaluate whether it is a business or a hobby. The Internal Revenue Service (IRS) would like you to look closely at the following guidelines before you commit to a business to determine your tax deductions:
Does the time and effort spent on this business translate into a profit? If not, then you cannot apply losses against the income. Are you planning to depend on this business as your main source of income? Do you have the skill and experience needed to carry on this business and make it successful? If this new venture is more of a hobby, then there is a separate schedule necessary to determine allowable deductions.
Type of Structure
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What structure are you planning to establish for your business? There are legal and tax considerations specific to each form of business. The most common forms for small business are sole proprietorship, partnership, and limited liability companies (LLC).
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Legal Considerations
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There are legal and tax considerations specific to each form of business. Limited liability companies, which are a new business structure, are designed to alleviate debt responsibility for the members or managers of the LLC. An LLC does not have a classification for federal tax purposes and must be filed under either a corporation, partnership or sole proprietorship tax return.
Checklist
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Most businesses start out small so it is much easier to get everything in place at the beginning, especially knowing what expenses are allowable deductions. The IRS provides a small business checklist that covers applying for an Employer Identification Number, how to select a business structure, how to choose your tax year and your accounting method (cash or accrual) and ways on how to pay your business taxes.
IRS Resources
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In February of 2010 the IRS launched a new audit program to randomly investigate 6,000 companies for employee misclassification in the independent contractor market. The funding of the unemployment insurance coffers is the catalyst. Check with the IRS guidlines for more information. To assist you with all your IRS small business information and questions the IRS has set up a free virtual small business/self employed tax workshop comprised of 9 lessons in a video online format.
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References
Resources
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