When the pandemic arrived in 2020, it seemed that everyone was leaving their jobs and starting their own businesses.

The timing was perfect, right? Lockdowns and social distancing had changed the reality of the workplace for almost everyone. So many people took the opportunity to make drastic changes and, in many cases, chase their dreams of entrepreneurship.

The smart ones came to us — or firms like us — early in the process to ensure they were handling the business side of their new business from a smart perspective. And even though the pace of new startup businesses has slowed, we still talk to a lot of people ready to strike out on their own as business owners.

Here are 5 tips we give everyone planning to launch a business …

1. Decide Whether It’s a Hobby Business or a For-Profit Business

If it’s a business, you’re in it to make money. If it’s a hobby, you may sell things and you may earn money, but you’ll be happy to break even on your investment of time and money. Now is the time to understand the difference and plan accordingly.

There’s absolutely nothing wrong with starting a business that never amounts to more than a hobby. You can still claim expenses and other deductions on your taxes, but you’ll face certain limitations when your goal is not to turn a profit.

If you’re running a business for profit, then you’ll need to take things a little more seriously and plan a detailed, thoughtful approach to your accounting and tax planning.

2. Select Your Business Structure

You could be a sole proprietorship, a partnership, a C-Corp, an S-Corp or a limited liability company (LLC). Each of these structures comes with its own set of tax rules and business strategies. Choosing the right structure to fit your business is imperative because the right selection can help you ensure the most profitability for your given circumstances.

3. Get Your Employee Identification Number

It’s kind of like a social security number for your business. An Employee Identification Number (EIN) identifies your business entity for tax purposes. It’s simple and free to apply online for your EIN.

Nearly every business will need an EIN. Are you a corporation or a partnership? Will you have employees? If so, applying for an EIN should be one of your first steps.

4. Choose Your Tax Year

The IRS considers a “tax year” to be an annual accounting period for keeping records and reporting income and expenses. For tax purposes, businesses can choose to operate on a calendar year or fiscal year. A calendar year is just how it sounds. It starts on January 1 and ends on December 31. A fiscal year can start on the first of any month and a year later.

Choose wisely because changing your tax year later can be a hassle.

5. Pay Your Business Taxes

Yeah, this is an important one. When you start your own business, you could be responsible for a variety of taxes, some of which you may have never considered before. Income taxes, estimated taxes, employment taxes, self-employment taxes and excise taxes are all items that you should be considering when starting a business. Understand what taxes apply to you, so you’ll be ready when the time comes to pay them.

A visit to the IRS website or some quick Google searching can find you plenty of detailed information about the tax responsibilities of a new business owner, but we highly recommend talking to experienced experts like our team at JRJ Income Tax Service. We work with business owners across a full range of industries, so we can help you understand what you’ll need to do and plan appropriately.

You’ll be investing a lot of time and energy into your business. If you take a little extra time at the beginning to plan properly, dealing with the realities of business accounting and taxes will be infinitely less stressful.