1   What Is an Employee Identification Number and Do I Need One?

The Employee Identification Number (EIN) identifies your business and is also known as the Federal Tax ID Number.

You need an EIN if you:

-- have employees.
-- are doing business as a corporation or partnership.
-- file one or more of these tax returns: Employment, Excise, or Alcohol, Tobacco, and Firearms. 
-- withhold taxes on income (besides wages) that is paid to a non-resident alien.
-- have a Keogh plan.
-- are involved with organizations such as Trusts, Estates, Non-profit organizations, Farmer’s cooperatives, or Plan Administrators.

Your state may also require a state Employee Identification Number. Check the IRS Web site at http://www.irs.gov/businesses/small/article/0,,id=99021,00.html for contact information for state governments.

Apply online for Federal Employee Identification Numbers, free, at the IRS Web site http://www.irs.gov/businesses/small/article/0,,id=102767,00.html

 2   What Types of Taxes Does a Business Pay?

The types of taxes a business pays depends upon the structure of the business (i.e., whether a business is a sole proprietorship, a corporation, an LLC, or other type). There are four types of business taxes, which include: 

-- Income tax: This tax can be paid on the annual tax return for the business or in estimated quarterly amounts. 
-- Self-employment tax: Self employed individuals pay this tax to contribute to future coverage under Social Security. Social Security covers retirement benefits, disability benefits, survivor benefits, and Medicare benefits. 
-- Employment tax: Business owners with employees pay employment tax, which includes social security and Medicare Taxes, Federal income tax withholding, and Federal unemployment tax. 
-- Excise tax: This tax is paid by businesses that manufacture or sell certain products, use certain equipment or facilities or products, or receive payment for certain services. For example, some trucks and buses used on public highways pay an excise tax.

 3   How Do I Determine if My Business Pays State Taxes?

Your tax liability will vary, depending upon the size of your business and the state your business is located in. Check out the U.S. Small Business Administration’s Web site at http://www.sba.gov/hotlist/statetaxhomepages.html to view a list of state taxing authorities.

 4   What About Local Tax Liability for My Business?

Many local governments impose an income tax on resident businesses. Local governments may also impose tax on property used for the business such as machinery, furniture, leased equipment, and furniture. Check with your local governing officials.

 5   How Do I File and Pay My Business Taxes?

Requirements for filing, and forms required, may vary depending upon the structure of your business. Taxes can be filed electronically or through the regular postal mail. See the IRS’s Web site for “Filing and Paying Your Business Taxes” at http://www.irs.gov/businesses/small/article/0,,id=109805,00.html. This site includes filing dates, forms, and instructions for filing and/or paying taxes electronically.

 6   How Does the Distinction Between an Independent Contractor and an Employee Affect Tax Liability?

Independent contractors are considered self employed and are responsible for withholding their own income tax and self employment tax. An employee has income and social security taxes withheld by the employer. This relationship is best defined up front. For the IRS’s definitions of the differences between an independent contractor and an employee, see the IRS Web site “Self-Employed Individuals” at http://www.irs.gov/businesses/small/article/0,,id=115045,00.html.

 7   What Are the Expenses I Can Deduct as a Business?

The IRS defines a business expense as something that is both necessary and ordinary. Common business expense categories include:

-- Cost of Goods Sold
-- Capital Expenses
-- Business Use of Your Home
-- Business Use of Your Car
-- Other Business Expenses, such as insurance, rent, interest, and taxes

Deductible business expenses vary according to your situation and your business. See the IRS “Business Expenses” Web site at http://www.irs.gov/businesses/small/article/0,,id=109807,00.html.

 8   Tax-wise, What Do I Need to Be Aware of if I Am Starting a New Business?

You will need to make decisions like what structure your business will take, when your tax year will begin and end, which accounting method you will use, and how you will set up recordkeeping. Check out the IRS “Starting a Business” Web site at http://www.irs.gov/businesses/small/article/0,,id=99336,00.html for detailed information on tax concerns for a start up business.

 9   What if I am Going Out of Business – How Does This Impact My Business Taxes?

You may incur revenue or expenses as you go out of business. How these are handled depends upon whether you sell your business, file bankruptcy, or change the structure of your business.

The IRS has information on “Closing a Business” at http://www.irs.gov/businesses/small/article/0,,id=98761,00.html. The Web site also provides checklists for closing your business.

 10   Where Can I Learn More about Business Taxes?

-- IRS Web site – Tax Information For Businesses: http://www.irs.gov/businesses/index.html
-- U. S. Small Business Administration Web site:    http://www.sba.gov 
-- My Own Business Web site:                               http://www.myownbusiness.org