Does a sole proprietor need to have a tax ID number?

A sole proprietor generally uses his or her Social Security Number as a tax ID number. However, it may be necessary for a sole proprietor to obtain an employer identification number (EIN).

What is a tax-deductible business expense under federal income tax law?

Basically, any ordinary and necessary expense that is business related may be deductible. The expense must be customary and incurred in the usual course of business. However, certain expenses may be prohibited. To know whether a particular expense is deductible, check the Internal Revenue Code and seek the advice of a tax lawyer.

Can I deduct business expenses if I work out of my home?

Certain criteria must be met in order to deduct business expenses for a home office. For example, to deduct business expenses for the part of your home in which you work, you must use that part regularly and exclusively for business purposes. In addition, the part of your home must be your principal place of business or a place where you meet with clients or customers in the regular course of business. You may also deduct expenses related to a separate structure that is not attached to your home, but that is used in connection with your business.

What type of business entity is best for tax purposes?

Each type of business entity has specific tax advantages and disadvantages. When selecting a form for your business, you should consider a number of factors, including the tax implications. It is a good idea to discuss this issue with an attorney who is familiar with tax planning and business formation.

Can I deduct the cost of business gifts?

If you give a business gift in the course of your business or trade, you may deduct the cost as long as you meet certain requirements under IRS rules. Generally, you can deduct no more than $25 per individual employee for business gifts.

Which form should my business use for its tax return?

The form your business uses depends on the way it is organized. For example, corporations file a Form 1120 or 1120-A; partnerships file a Form 1065; sole proprietorships file a Form 1040; and S corporations file a Form 1120S.

What is an audit?

An audit is an investigation by the Internal Revenue Service (IRS) to determine whether the information provided in tax filings is accurate and truthful. An audit attempts to determine whether or not a business paid the proper amount of tax.

What should I do to prepare for an IRS audit? 

It is a good idea to be prepared for an audit at any time. If the IRS notifies you that your tax returns are being examined, you should gather any necessary documents that will help explain your filings. Also, be sure to discuss the audit with counsel. An attorney will be able to give you an idea of what sort of information the IRS will need, and what the potential consequences of an audit might be.

Do I need to file a tax return if my company did not earn any income?

It depends on the type of entity that you have formed. Corporations are generally always required to file a tax return, while other types of entities, such as partnerships, may not have to file if they did not have any income.

What types of taxes does a business have to pay?

A business' main tax concern is likely the federal income tax. However, a business may also have to pay employment taxes, payroll taxes, property taxes, excise taxes and estate and gift taxes.