For National Small Business Week, April 30 to May 6, the Internal Revenue Service (IRS) is sharing tax benefits and small business resources with new and established small business owners. The U.S. Small Business Administration (SBA) uses National Small Business Week to celebrate and recognize the innovation and hard work of small businesses and entrepreneurs. In solidarity, the IRS is providing a variety of tools and other information to help small businesses understand and meet their tax obligations. Earlier, in March 2023, the IRS provided employers with its annual list of potential tax scams, which included employee retention credit scams.
Information for New Small Business Owners
The IRS reminds new small business owners to obtain an Employee Identification Number (EIN). The agency assigns this permanent nine-digit number to small businesses that apply online for free through the IRS’ EIN webpage. Specifically, the IRS uses an EIN to identify employer and zero-employee business tax accounts. Companies need an EIN for most business needs and small business resources, including opening bank accounts and filing tax returns.
When starting a business, taxpayers must also determine what kind of entity they will establish. The structure of the business determines which tax return form an owner must file. Briefly, the most common business structures include:
- Sole proprietorships – individually owned unincorporated businesses
- Partnerships – a joint trade or business between two or more people
- Corporations – where shareholders own capital stock in the company
- S Corporations – corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders
- Limited Liability Companies (LLCs) – offers owners limited liability protection for debts and losses and allows pass-through taxation (LLCs do not need to pay taxes on the entity level)
Prospective business owners can also visit the IRS’ Starting a Business page for more small business resources.
Small Business Resources and Tax Information
Small business owners and self-employed individuals must usually make quarterly estimated tax payments as their business earns income during the tax year. As stated earlier, the business’ structure determines what taxes the owner must pay, as well as how to pay them. Generally, the four types of business taxes are:
- Income tax – applicable to all businesses except partnerships (partnerships file information returns)
- Self-employment tax – a Social Security and Medicare tax primarily for sole proprietors
- Employment tax – for small businesses that have employees
- Excise tax – taxes imposed on goods, services, and activities
Tax Calendar and Recordkeeping
As mentioned previously, a “tax year” is an annual accounting period for reporting income and expenses. When figuring their taxable income based on a tax year, a business may choose either the normal calendar year (January 1 to December 31) or a fiscal year (12 consecutive months ending on the last day of any month except for December). Meanwhile, the “fiscal tax year” varies from 52 to 53 weeks and does not have to end on the last day of a month. For additional tax-related small business resources, employers can visit the IRS’ Business Taxes information page.
Finally, small business employers must maintain certain required records. Among the five types of employee records all employers must keep are IRS payroll withholding records. Such required records help small businesses prepare financial statements, identify income sources, and keep track of deductibles. All employers must retain IRS-related records for at least three years.