Dear Suresh, thank you for posting on my blog.
You have incorported your business and also got your first client on contract basis, CONGRATULATIONS. Now what?
Don't panic, you are in control of your business and finances, and you will retain the control as long as you abide by the rules and regulations imposed by various agencies that include IRS (your favorite uncle SAM) and state and local govermental agencies.
Follow these simple steps:
Since you are in a service industry you do not have to worry about collecting sales tax, maintaining sales tax records, file and pay sales tax. However, as you are being treated by your wife's company as an employee, she as an employer is required to pay you wages, withhold payroll taxes from your paycheck i.e. social security, medicare, federal and state income tax withholdings, make federal and state withholding tax deposits and file payroll tax reports i.e. 941 and SUTA reports on a quarterly basis.
ANY expense that can reasonably be proved to be incurred for business purpose i.e to carry on the business activity is a business expense. Some expenses are Accounting, Bank Service Charges, Travel, Business Meals, Internet e.t.c. Maintain records to prove the business purpose for the expense.
If you are familiar with accounting then you can do it yourself or have a professional accountant prepare your accounting records or financial statements on a monthly basis (this is my recommendation). Financial statements will help your understand and manage your business and they will also help you understand cost centers, which is very crucial.
Last but not least. Prepare and file your yearly business income tax return. This is seperate return than your personal 1040 return. If you are on a calender year (I assume) then your business tax return will be due on March 15th of each year as long as you are in business.
I hope this information is helpful to you.
Regards,
Ashraf S. Mehdi
Disclaimer
The steps listed above is only a partial list. They may change depending upon serveral factors such as business structure, industry e.t.c. This list is a general list that applies to most businesses and is not customized to reflect your business in particular. Please consult your personal accountant or tax advisor to customize it for your business use.
You Wrote:
Dear Ashraf,I hit upon your blog on the web, where you are providing some free advise. I could not find a way to post a question your blog. Hence I am sending you this email. My wife recently Incorporated a small business in the State of NC in the area of IT Consulting Services. She has received the Federal EIN. I am an employee of this company working in a contract position for which the money was paid into the business checking account by the client company. I am trying to figure out what all I need to do next in terms of payroll taxes to be paid to Federal, State, etc. Also, what are the expenses (such as mileage, phone, internet connnection, etc.) I can deduct under the small business.
Also, I would like to know what are the other forms and steps I need to follow in the context of this small business setup. Any help you can provide will be much appreciated.
Thanks
Suresh
