Initial Tax Decisions to Make

When you start a business of any kind, whether a full-time or part-time one, you need to make certain choices. Here is a checklist of the elections, choices, and decisions to make when commencing a business (the chapter in which the item is discussed is also noted):

• Type of entity (Chapter 1). Should you incorporate? Form an LLC?
• Tax year (Chapter 2). Should you use a calendar year? A fiscal year (and which fiscal year)?
• Accounting method (Chapter 3). Should you use the cash method? Accrual method? Some other method?
• Investing your own resources. When you add money or property to a start-up, are there any immediate tax results to you? To the business?
• Financing (see below). If you need more money beyond what you can add, should you borrow money to start up? Should you take in investors?
• Equipment (Chapter 14). Should you start with the things you already own? Buy new equipment? Lease new equipment?
• Home office (Chapter 18). Should you start from home? Rent space? Buy a facility?
• Professional advisors (Chapter 22). Who is going to be your company attorney? Accountant? Insurance agent?

None of the decisions you make initially are carved in stone. You can make changes, but often they come with tax consequences. For instance, if you start as a corporation and then want to become a limited liability company, you may incur taxes upon the corporation’s liquidation. Similarly, when you change tax years or accounting methods, you may have additional income to report from the changeover.

It is always a good idea to work with knowledgeable professionals to get started on the right foot. The money you pay for this advice can be considerably less than the cost of mistakes for doing things incorrectly on your own.