How to Set Up Your Business for Tax Success from Day One

Kim Bernstein
Mar 10
3 min read

Starting a business is exciting, but taxes can feel overwhelming. The good news? If you set up your business properly from the start, you can avoid headaches and costly mistakes down the road. Here’s how to get your business tax-ready from day one.

1. Choose the Right Business Structure

Your business structure affects how you file taxes, your liability, and your ability to grow. The most common options are:

✅ Sole Proprietorship – Easy to set up, but you’re personally liable for debts & taxes. You’ll report income on Schedule C (Form 1040) and pay self-employment tax (15.3%).

✅ LLC (Limited Liability Company) – Offers liability protection and flexible tax options. By default, single-member LLCs are taxed as sole proprietors, while multi-member LLCs are taxed as partnerships. LLCs can also elect S-Corp or C-Corp taxation.

✅ S-Corporation (S-Corp) – Helps reduce self-employment taxes, but requires reasonable salary compliance. S-Corps file Form 1120-S, and owners report profits on their personal tax returns.

✅ C-Corporation (C-Corp) – Best for large businesses with investors. C-Corps are taxed at a flat 21% rate, but profits distributed as dividends are taxed again at the shareholder level.

📌 Tip: If unsure, consult a tax professional to determine the best structure for your needs.

2. Get Your EIN & Register with the IRS

An Employer Identification Number (EIN) is like a Social Security Number for your business. Even if you’re a sole proprietor, an EIN helps separate business and personal finances.

🔹 Apply for an EIN for free on the IRS website: Apply Here.

🔹 Register your business with your state and obtain any required licenses. State requirements vary—check with your Secretary of State or Department of Revenue.

3. Separate Business & Personal Finances

Keeping your finances separate is crucial for IRS compliance and accurate tax reporting.

✅ Open a business bank account to track income and expenses.

✅ Get a business credit card to build credit and track deductible expenses.

✅ Avoid “co-mingling” funds—mixing personal and business transactions can trigger IRS scrutiny!

4. Track Income & Expenses from Day One

Good record-keeping makes tax time easier and stress-free:

✅ Use accounting software like QuickBooks, Wave, or Xero to track income & expenses. ✅ Keep digital copies of receipts for tax deductions—IRS rules require proper documentation.

✅ Categorize expenses properly (home office, travel, advertising, supplies, etc.) to maximize deductions.

5. Understand Your Tax Obligations

📅 Self-Employed or LLC (without corporate election)? You may owe quarterly estimated taxes (Form 1040-ES).

📅 S-Corp or C-Corp? File a separate business tax return (Form 1120-S or 1120).

📅 Have employees? You must withhold payroll taxes and file Form 941 or 944.

📅 Selling goods? Check your state’s sales tax registration & reporting requirements.

6. Stay on Top of Important Deadlines

Missing a tax deadline can lead to penalties. Here are some key dates:

📌 Quarterly Estimated Taxes: April 15, June 15, September 15, January 15.

📌 Annual Business Tax Returns:

March 15: S-Corps & Partnerships (Form 1120-S & 1065) – Extension deadline: September 15.
April 15: Sole Proprietors & C-Corps (Schedule C on Form 1040, Form 1120) – Extension deadline: October 15.

📌 Payroll Tax Deadlines: Employers must file Forms W-2 & 1099-NEC by January 31.

Bonus: Don’t Miss Out on Tax Deductions!

New businesses can claim valuable deductions such as:

✅ Startup Costs – Up to $5,000 in first-year deductions for business formation expenses. ✅ Home Office Deduction – If you use a dedicated space for business, you may qualify.

✅ Business Mileage – Track work-related driving to deduct mileage expenses.

✅ Health Insurance Premiums – Self-employed individuals may deduct premiums paid.

Final Thoughts

The best way to set your business up for tax success is to stay organized and proactive. Need help getting started? KB2 Bookkeeping & Tax is here to guide you! Contact us today to ensure your business is tax-ready from day one. 🚀