Starting a business is exciting — and the decisions you make in the first few weeks quietly shape your taxes for years. Get the setup right early, and tax season becomes a formality instead of a scramble. Here’s where to focus.
Get your EIN
An EIN (Employer Identification Number) is a free federal ID number for your business, and it’s the foundation for almost everything else — opening a business bank account, hiring, and filing business returns. It takes minutes to request directly from the IRS, and you should never pay a third-party site to get one for you.
Choose the right tax structure early
How your business is taxed — sole proprietor, LLC, or S-corporation — affects how much you pay and how much paperwork you carry. There’s no universal “best,” it depends on your income and goals, and it’s far easier to set up correctly than to untangle later. (We break the options down in a separate guide.)
Separate business and personal from day one
Open a dedicated business bank account and run every business dollar through it. This one habit does more for a clean, defensible tax return than anything else — it keeps your deductions organized and draws a clear line if the IRS ever asks questions.
Know what you’ll actually owe
When you work for yourself, no employer is withholding taxes for you — and you’ll owe self-employment tax (Social Security and Medicare) on top of income tax. The IRS expects you to pay as you go through quarterly estimated payments, so it’s worth knowing that number before it surprises you in April.
Keep records that make tax time easy
Save receipts, track mileage, and hold onto documentation for anything you plan to deduct. A simple system you actually use beats a perfect one you abandon. The goal isn’t to become an accountant — it’s to make sure you can claim every deduction you’ve earned.
Bring in a pro before you’re locked in
The best time to talk to a tax professional is before you file that first return — while entity elections and setup decisions are still easy to make. A short conversation up front can save real money down the road.
Have a question about your situation?
Every return is different. If you'd like a real person to look at yours, your first consultation with Compass Tax Center is free.