An individual starting a new business commonly seeks the assistance of an accountant. By rendering thorough advice after becoming a certified public accountant, the CPA captures a new client for long-term services.
A particularly beneficial area of consultation to a new entrepreneur concerns business structure. Creating a corporation certainly entails different tax consequences than an unincorporated proprietorship. The distinctions covered in a CPA exam study guide are needed for a long career of advising business owners.
Multiple individuals creating a business together are taxed as a partnership unless they incorporate. Understanding the differential tax treatment is vital. Therefore, these people turn to professionals with certified public accountant training.
Partnerships and corporations have some specific accounting demands. Neglecting attention to these details becomes terribly expensive to resolve. Fortunately, part of the teaching in a CPA examination course addresses preparation of financial statements.
Tax return work can only follow creation of accurate accounting records. For this reason, understanding compilation and adjustment to financial statements is one of the principal subjects of CPA exams. In addition to establishing an accounting system, new entrepreneurs need to know about properly tackling every applicable federal and state tax. CPAs should prepare to explain all taxes in addition to income tax.
One of the concerns for a new business is sales and use tax. Entrepreneurs must determine if businesses in their industry are subject to this tax. States have simplified this process by posting online their references to affected business types. An enterprise that is required to collect and pay sales tax needs to properly account for and remit the correct amounts with accurate tax forms.
Wages are by far the primary area of concern for every business with employees. The first step is correctly classifying workers as employees or independent contractors. Every employee must submit a Form W-4. The business then withholds and remits both employee income tax and payroll taxes. Withholding of state income tax is also required.
Other taxes are remitted from the employer’s funds. This includes Social Security and Medicare taxes not withheld from wages. In addition, federal and state unemployment taxes are determined based upon specific formulas. Accounting for each type of tax is critical for an employer.
Last, but not least important, is estimated tax payments. Business profits are of course taxable, which necessitates minimum estimated payments of income tax.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.