When starting a new business in Washington State, there are a few factors to consider right off the bat. The type of business structure you will have can greatly affect your tax liability. Sole Proprietorships, Limited Liability Companies, S-Corporation, C-Corporation, etc., vary in tax implications. You must also be sure that your business is registered and licensed appropriately, and not only with the State of Washington. It’s possible that the city you are locating your business within will have its own licensing requirements and taxes to pay as well. Additionally, it is vital to the success of a company that the accounting system is set up correctly from the beginning. With these points in mind, you are off to a good start.
The Small Business Administration explains on their website the difference between each structure type. Some of the differences may be subtle and you may not realize that you would benefit greatly from Sole Proprietorship over an S-Corporation, or even vice versa. It’s wise to enlist the expert guidance of a Tax Specialist when deciding the structure of your new business. For instance, your tax liability varies greatly whether you are an S-Corporation or a Limited Liability Company; the same goes for other entities as well. Projected yearly income, whether or not you’ll have employees, and often just the nature of your business can greatly change your tax and financial liability. Make sure you have done your research and your business plan is strong, so you and your Tax Specialist can make informed decisions for your future and the future success of your new business. Washington State does not impose an “Income Tax”, however there is an Excise Tax or Business and Occupation Tax for companies to pay. Again, the amount of tax you pay will be affected by the amount of income you are taking in, the nature of your business, and the structure of your company. There are some credits that your Tax Specialist can apply to your B&O Excise Tax Return that can make a big difference. Be sure you have a qualified professional who knows about and will take advantage of these tax benefits for you. On top of the B & O, you may be asked to pay taxes to the city where your business is registered. You may even be influenced on where you locate your business depending upon the taxes that would be imposed. It is wise to be well informed ahead of time so you are aware of all of your options.
Once you have formed your company, and become registered and licensed, it is imperative that you have an organized accounting system. An incorrectly established accounting system can cost you hundreds or even thousands of dollars in corrective work later. If you are audited by the IRS and your accounting is a mess, you could be forced to pay back any expenses you claimed on your tax return if your documents do not support your claims. This may include travel expenses, auto expenses, meals, or other crucial operating costs. The IRS is very active right now and audits are random. Having sloppy records is just not worth the possible risk. With clean, organized records you are much more apt to be given a needed loan for your business. You can track your revenue and expenses easily and see where you might be able to make changes in your overhead.
Of course, there are many factors that play a part in whether a business is successful. Paying close attention to the above issues in the beginning of the process, you will have a better chance at success in the future. If you are considering consulting a professional about the business formation process, visit our website and read about our Business Formation, Accounting, Tax Planning, and Audit Representation services to help your business be as successful as possible. Feel free to call us for a consultation at 425-242-0636 or write us an email at office@phd-tax.com.
