Questions to Ask an Accountant When Starting a Business

Starting a new business involves navigating a complex financial and legal landscape. Engaging with a qualified accountant early offers significant advantages, helping new business owners establish a solid financial foundation. An accountant provides tailored guidance, clarifies regulatory requirements, and helps avoid costly mistakes, allowing entrepreneurs to focus on operations.

Choosing Your Business Structure

Selecting the appropriate business structure is one of the initial and most impactful decisions a new owner will make, directly affecting personal liability, ownership, and tax treatment. An accountant helps evaluate the distinct characteristics of each common structure. For a sole proprietorship, a business owner might ask about the direct personal liability for all business debts and obligations, and how business income and expenses are reported on their personal tax return, Schedule C (Form 1040).

For a partnership, inquire about how profits and losses are shared, the implications of joint and several liability, and the necessity of a comprehensive partnership agreement. An accountant can explain how partnerships generally file an informational return (Form 1065) but pass profits and losses through to partners’ individual tax returns.

For a Limited Liability Company (LLC), a business owner should inquire about the protection it offers against personal liability for business debts, similar to a corporation, and the flexibility in tax treatment, allowing it to be taxed as a sole proprietorship, partnership, S-corporation, or C-corporation.

An accountant can further detail the tax ramifications of electing S-corporation status, which typically involves pass-through taxation to avoid double taxation on corporate profits, while still providing liability protection. Business owners should ask about the strict requirements for S-corporation election, such as limitations on the number and type of shareholders.

For a C-corporation, it is important to understand the concept of double taxation, where profits are taxed at the corporate level and again when distributed to shareholders as dividends. An accountant can explain the formal steps involved in forming each entity, including state registration fees and ongoing compliance requirements.

Understanding how each structure impacts self-employment taxes is also a common question, as sole proprietors and partners are generally subject to self-employment tax (Social Security and Medicare taxes) on their net earnings from self-employment at current rates. An accountant also provides insight into future growth, fundraising, or adding partners, advising on structures that facilitate equity issuance or ownership changes to align with long-term business objectives.

Navigating Tax Responsibilities

Beyond the initial choice of business structure, new businesses encounter a variety of ongoing tax obligations that an accountant helps to clarify. A fundamental step for many businesses is obtaining an Employer Identification Number (EIN) from the IRS, which is required for businesses with employees, those operating as a corporation or partnership, or filing certain tax returns. Business owners should ask an accountant if their specific business activities necessitate an EIN and how to apply for it.

Understanding estimated tax payments is crucial, as many small businesses and self-employed individuals pay income tax quarterly. Inquire about federal estimated tax payment deadlines (typically April 15, June 15, September 15, and January 15 of the following year) and how to calculate payments to avoid penalties. An accountant can also explain state-specific estimated tax requirements.

For businesses selling goods or certain services, sales tax collection and remittance obligations are a significant consideration. Business owners should inquire about whether their products or services are subject to sales tax in the jurisdictions where they operate and how to register for a sales tax permit. An accountant can provide guidance on the varying sales tax rates and reporting frequencies.

Some industries may also be subject to specific excise taxes on certain goods or services, such as fuel, tobacco, or communications. An accountant can help identify if a business falls under these categories and explain the associated reporting and payment requirements.

Identifying common deductible business expenses helps minimize taxable income. Ask what constitutes a legitimate business expense, such as office supplies, rent, utilities, and advertising, and the necessary record-keeping, like receipts and invoices. An accountant can also offer tax planning strategies for the first year, such as choosing an accounting method (cash versus accrual) and understanding depreciation rules for assets, to optimize tax outcomes.

Setting Up Financial Systems

Establishing robust financial systems is paramount for any new business to accurately track performance and ensure compliance. Business owners should ask an accountant for recommendations on appropriate accounting software or bookkeeping methods. Options range from cloud-based solutions like QuickBooks Online or Xero, which offer automated bank feeds and invoicing, to simpler spreadsheet-based systems for very small operations. An accountant can help evaluate which system best fits the business’s complexity and budget, considering features like inventory management or payroll integration.

Setting up a chart of accounts is a foundational step, providing an organized list of all financial accounts. Inquire about tailoring a chart of accounts specific to your industry, including asset, liability, equity, revenue, and expense accounts. This structure ensures consistent categorization of financial data, essential for accurate reporting and tax preparation.

Establishing clear processes for tracking income and expenses is a key discussion point. This includes how to record sales, manage customer payments, and document every business expenditure. An accountant can advise on workflows for collecting and storing receipts, reconciling bank statements, and preparing for tax filings, which helps maintain accurate financial records.

Managing accounts receivable (money owed to the business) and accounts payable (money the business owes to others) is another critical area. Business owners should ask about best practices for invoicing customers, tracking outstanding payments, and managing vendor bills efficiently. An accountant can help implement systems for timely collections and payments, which directly impact cash flow.

Understanding key financial reports, such as the Profit & Loss (Income) Statement, Balance Sheet, and Cash Flow Statement, is vital. Ask an accountant how to interpret these reports, as they provide insights into profitability, financial position, and liquidity, guiding strategic decisions.

Establishing best practices for separating personal and business finances, such as opening a dedicated business bank account and credit card, is fundamental to avoid commingling funds and simplify record-keeping for tax purposes.

Managing Payroll and Employees

For businesses planning to expand their team, understanding the nuances of payroll and employee management is crucial. A primary question to ask an accountant is the distinction between an employee and an independent contractor, as misclassification can lead to significant penalties from the IRS and state labor departments. An accountant can explain the “common law” rules, which assess the degree of behavioral control, financial control, and the type of relationship between the worker and the business.

Once workers are correctly classified, setting up payroll systems and processes becomes necessary. Business owners should inquire about options ranging from in-house manual processing to utilizing payroll service providers like ADP or Gusto, which handle calculations, filings, and direct deposits. An accountant can help determine the most efficient and compliant payroll solution for the business’s size and needs.

Understanding federal and state payroll taxes is also paramount. This includes Federal Insurance Contributions Act (FICA) taxes (Social Security and Medicare), Federal Unemployment Tax Act (FUTA) taxes, and State Unemployment Tax Act (SUTA) taxes. An accountant can clarify withholding requirements for federal and state income taxes from employee wages.

Worker’s compensation insurance requirements are another area for discussion, as most states mandate this coverage to provide benefits for employees injured on the job. Business owners should ask about the specific coverage requirements in their jurisdiction and how to obtain appropriate policies.

Finally, compliance with state and federal labor laws related to wages and hours, such as minimum wage laws, overtime regulations under the Fair Labor Standards Act (FLSA), and record-keeping requirements for employee work hours, is essential. An accountant can help ensure the business adheres to these regulations to avoid potential legal issues and fines.