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Small Business Start-Up: Tax Tips for the Entrepreneur

Business consultants will tell you that starting a small business isn’t easy, whether you’re starting from scratch, buying an existing business, or purchasing a franchise. Your idea may be great, but will it be profitable?

Market research is important. How many others are offering your product or service in your area? What are the trends in your chosen industry? Do growth opportunities exist, or is the market in decline? Is your competition local, regional, or national? How will you price your product or service?

You’ll need to think about expenses and cash flow/budget planning. How much will it cost to break into the market? Do you have personal savings to dip into, or family and friends who will loan the necessary funds? If not, how will you access the capital you need?

Write a business plan. It’s time consuming, but forces you to think through your idea carefully. The entrepreneur with a good plan is more likely to succeed than one who simply steps out without knowing his or her next step.

Find help from agencies such as the Small Business Development Council.

Choosing your business structure is important, as it will impact your taxes and the forms you need to file. The IRS offers some useful information to help you decide, as does the Small Business Administration.

You’ll most likely need an Employer Identification Number (EIN), if only for setting up a separate bank account for your business (avoid intermingling personal and business funds so you don’t find yourself in a mess at tax time). You can apply online for your EIN.

Determine what tax accounting method to use and be consistent! The two most common methods are cash and accrual. You should consult your tax accountant about the best option and pay him or her to set up your books if you’re unsure.

If QuickBooks seems too complicated for you, many small business apps are available to help you capture expenses as you go, and some allow you to invoice clients directly from the app.

Research products such as Freshbooks, Xero, FreeAgent, and Kashoo. Many will allow you to transfer the information to your accountant or to an accounting firm, making tax time less taxing for both of you.

Talking of taxes, you can be sure Uncle Sam will be looking for a share of your profits. Four general types of business taxes can occur, and vary according to the business structure you choose: income tax, self-employment tax, employment tax and excise tax.

As your business thrives and takes on employees, you’ll need to be ready for the payroll tax and employee healthcare tax. A Small Business Healthcare Tax Credit is available for some small businesses that offer healthcare to employees. For more information on healthcare responsibilities, check out the Affordable Care Act for Employers.

Setting up a business may seem a little overwhelming, but America is still the land of opportunity, so follow your dream! When you need Tomorrow’s Advice Today™ from an experienced tax accountant, keep Patrick & Robinson CPAs in mind. We’ve helped countless small businesses over the years and would be glad to serve you too!

Contact us at or 904-396-5400.

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