July 29th, 2010 
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Taxes for Online Business Owners: Where to Begin
Taxes for online business owners have changed over the last few years and they will be changing over the next few years as well. As a business owner, you will need to stay abreast on all the changes as they occur.
Business Income Taxes
First, you need to determine which form of business entity you wish to establish (sole proprietorship, partnership, LLC). This will decide which tax returns you will have to file. If you are just starting out and doing it by yourself, then a sole proprietorship is probably the easiest and most familiar.
Remember, almost every state has a business or corporate income tax. Therefore, you must be prepared to file state taxes even in states that do not have an income tax.
Employer and Tax Identification Numbers
The majority of businesses will need to register with the IRS, state, and local revenue agencies to receive a tax ID number or permit.
An EIN is also called your federal tax identification number. It is used to identify your business. If you are a partnership, corporation, organization, or have employees, you will need this number.
Tax Forms for Independent Contractors
All businesses are required to file tax forms on independent contractors. In the online world, this generally means affiliates. However, it includes anyone you pay who is not employed by you.
- Form W9 - Independent contractors will need to fill out the form and return a signed copy to you. It will contain either their social security number or their EIN. You need to keep this for four years in case the IRS has any questions.
- Form 1099-MISC - This form is commonly used by payers to report payments made to businesses or affiliates in the course of everyday business. If you pay any independent contractor $600 or more, then you must submit a form to the IRS and send a copy of the form to the independent contractor no later than January 31.
The File Information Returns Electronically (FIRE) system is set up to help people file information for returns. It includes the 1042-S, 1098, 1099, 5498, 8027, and W-2G. However, you must have software that allows you to submit the files electronically.
Tax Training Online Available Through the IRS
For those who find all this information a little overwhelming or who want more information, the U.S. IRS (irs.gov) has set up online and in-person training and workshops. They include:
- IRS Virtual Tax Workshop - The free online course is designed to help you prepare, file and manage small business taxes.
- Online Classroom - Online classroom has a series of self-directed workshops on a variety of topics for small businesses.
- Online Learning and Educational Products - Educate yourself on business taxes at your own pace
- Small Business Tax Workshops and Phone Forums - Workshops to help small business owners fulfill and understand the federal tax requirements.
Online businesses have their unique tax issues. However, there is help out there if you are ready and willing to use it.
About the Author
Would you like have a service for your online business that tracks all W9 and 1099 information for your tax records on file? Try this free affiliate program management for online business owners that requires payees to fill out a tax profile. Visit PayPeopleOnline.com to keep your business away from tax nightmares and raising flags with the IRS.
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