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Organizing Your Small Business

Set things up right from the get-go and your business can run smoothly. This advice applies not only to your business operations, but also for tax purposes. Get organized and you're sure to get ahead.

  • Business entity. Select the type of business organization that can provide you with the tax-reporting and other edges you want. If you're the sole owner and opt to be a sole proprietor (a self-employed person), understand what this means in terms of tax reporting, access to fringe benefits, and personal liability.
  • Tax year. Most individuals report their income taxes on a calendar year ending on December 31. The federal government uses a fiscal year ending on September 30. For your business, you can (within certain parameters) choose a tax year that works best for your business situation.
  • Accounting method. When to include revenue in income and deduct expenses depends in part on your accounting method. The easiest one to use is the cash method, but the tax law may require use of the accrual method or some other method.
  • Record keeping. Businesses are required to keep books and records for tax purposes, and it is also smart business practice. The tax law has many special record-keeping rules to follow; failure to do so can cost you deductions and credits to which you are otherwise entitled.