Small Business Tax: Setting Up Your Business For Tax Season
What is an "Employee Identification Number" (EIN) and do I need one?
An Employee Identification Number is something by which the taxing authorities recognize you, somebody that has employees will be required to get one. In these days of identity theft, it's usually advisable to have a separate Tax ID Number. If you don't have one, you have to operate under your Social Security Number. A Taxpayer Identification Number, or TIN, is really the same as an Employer Identification Number, or EIN. It's an alternative means of identifying your business, and it generally allows for something other than your Social Security Number being used to identify yourself.
How do I get an Employee Identification Number (EIN)?
Sole proprietors and corporations alike can obtain Employer ID numbers (EIDs), tax ID numbers. A sole proprietor is not precluded from obtaining an EID, and in some cases may want an EID, particularly if they have employees. A tax payer ID number is really relatively simple to obtain. You can fill out a form SS-4 and fax it or mail it to the IRS, or apply online at www.irs.gov. Just search for "apply for an employer ID number (EID)," and you'll get a pop-up screen that's easy to follow.
When would my business need to file for a new EIN?
There may be reasons why you would want to keep the same employer identification number (EIN), some states and federal jurisdictions base unemployment insurance rates and other rates on the length of an employer's history. So if you're using an employer identification number (EIN) for that purpose you may want to maintain it, especially if you haven't had a lot of dismissals or a lot of unemployment claims against your company. Otherwise it's usually good practice to obtain a new employer identification number (EIN) number when you start a new business or move to another business. Anytime you form a new business, or any time you plan on hireling employees, you should apply for a taxpayer ID. If you're transitioning a business, maybe dissolving one business and starting another, it's probably good practice to get a new tax payer ID number. So if you had a hardware store before that you sold and now you're buying a restaurant it's probably best to open up a new account.
As a self-employed person, how do I handle my tax withholding?
If you have your own business, it's very important to pay in taxes timely and pay in the right amount. If you have an incorporated business, you may actually be able to be an employee of your corporation. And you would withhold taxes from your salary much like you would do for people who work for you. If you are not incorporated or you do not take a salary from your incorporated business, you generally pay in quarterly. We advise people to actually prepare a tax projection on a quarterly basis, and that means laying out their business income along with their personal deductions to determine what exactly they owe at that point in time. The regulations require that you, for lack of a better term, “square up” every quarter and pay tax on the income, net taxable income, that relates to that quarter.
