Aspiring Entrepreneurs
Complete foundational guide on IRS business structures, corporate entity options, federal EIN registration, and initial tax obligations for new business owners.
Aspiring entrepreneurs: learn the basics of setting up a business
New entrepreneurs can start out on the right foot by making sure they understand the tax responsibilities of running a business. The process can seem daunting, but IRS.gov has resources to help new business owners.
Here are a few things new entrepreneurs need to do when starting their business.
Choose a business structure
The form of business determines which income tax return a business taxpayer needs to file. The most common business structures are:
- Sole proprietorship: An unincorporated business owned by an individual. There's no distinction between the taxpayer and their business.
- Partnership: An unincorporated business with ownership shared between two or more people.
- Corporation: Also known as a C corporation. It's a separate entity owned by shareholders.
- S Corporation: A corporation that elects to pass corporate income, losses, deductions and credits through to the shareholders.
- Limited Liability Company: A business structure allowed by state statute.
Choose a tax year
A tax year is an annual accounting period for keeping records and reporting income and expenses. A new business owner must choose either:
- Calendar year: 12 consecutive months beginning January 1 and ending December 31.
- Fiscal year: 12 consecutive months ending on the last day of any month except December.
Apply for an employer identification number
An EIN is also called a federal tax identification number. It's used to identify a business. Most businesses need one of these numbers. It's important for a business with an EIN to keep the business mailing address, location and responsible party up to date. IRS regulations require EIN holders to report changes in the responsible party within 60 days. They do this by completing Form 8822-B, Change of Address or Responsible Party and mailing it to the address on the form.
Have all employees complete these forms
Pay business taxes
The form of business determines what taxes must be paid and how to pay them.
Visit state's website
Prospective business owners should visit their state's website for info about state requirements.
What You Receive
Frequently Asked Questions
What is an Employer Identification Number (EIN) and do I need one?+
An EIN (also known as a Federal Tax Identification Number) is a 9-digit number assigned by the IRS to identify a business entity. While a sole proprietor with no employees can legally use their SSN, acquiring an EIN is strongly recommended to protect personal identity, open a business bank account, and hire contractors.
What are the 5 general types of business taxes?+
The 5 general types of business taxes are: 1) Income tax, 2) Self-employment tax (Social Security & Medicare for sole proprietors and partners), 3) Estimated tax, 4) Employment taxes (FICA and FUTA for employees), and 5) Excise taxes for specific manufactured goods or operations.
How do I choose between a calendar year and a fiscal year?+
A calendar tax year is 12 consecutive months that begins on January 1 and ends on December 31. A fiscal tax year is 12 consecutive months ending on the last day of any month except December. Most new small businesses adopt the standard calendar tax year.
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