First-Year Business Tax Checklist: Everything New Business Owners Need to Do

First-year tax checklist (15 items):

Before starting operations:

1. Get an EIN (Employer Identification Number)

• Apply at IRS.gov (instant, free)
• Required for: S-Corps, partnerships, any business with employees, opening a business bank account
• Sole proprietors without employees CAN use their SSN but SHOULD get an EIN (protects SSN, looks professional)

2. Choose your entity structure

• Sole proprietorship: default, no filing required, simplest
• Single-member LLC: file articles of organization with your state ($50-$500)
• Multi-member LLC: same as above, creates a partnership by default
• S-Corp election: file Form 2553 within 75 days of formation (or by March 15 for calendar-year election)
• The choice affects tax rates, liability protection, and complexity for years

3. Open a separate business bank account

• Never commingle personal and business funds
• Use the EIN (not SSN) for the account
• Get a business debit card or credit card
• This is the #1 audit protection measure: a clean separation of business and personal transactions

4. Set up a record-keeping system

• Choose accounting software: QuickBooks Online ($30/month), Wave (free), FreshBooks ($17/month)
• Or: a simple spreadsheet for income and expenses (adequate for small sole proprietorships)
• Start tracking from day one, not at year-end

During operations (ongoing):

5. Track every business expense

• Keep receipts for all purchases over $75 (under $75 not required but recommended)
• Categorize expenses: materials, vehicle, insurance, phone, marketing, etc.
• Use a receipt scanning app (QuickBooks, Dext, Expensify) to digitize paper receipts
• The IRS requires “contemporaneous” records (at or near the time of the expense)

6. Track vehicle mileage from day one

• Use a mileage tracking app (MileIQ, Everlance) or manual log
• Record: date, destination, business purpose, miles driven
• You MUST track mileage to claim the deduction; estimates aren’t accepted in an audit
• The first year’s method choice matters: if you use the standard mileage rate in Year 1, you can switch to actual expenses later. If you use actual expenses in Year 1, you CANNOT switch to standard mileage for that vehicle.

7. Make estimated tax payments

• If you expect to owe $1,000+ in tax, make quarterly payments
• Year 1 prior-year safe harbor: if last year’s tax was $0, no penalty for skipping
• But: set aside 25-30% of net profit monthly for taxes (even if no payments are due)
• Payment schedule: April 15, June 16 (2025), September 15, January 15

8. Separate startup costs from operating expenses

• Costs incurred BEFORE the business opens: startup costs (IRC 195)
• First $5,000 deductible immediately (phase-out starts at $50,000 total)
• Remainder amortized over 180 months
• Costs incurred AFTER opening: regular business expenses (fully deductible)
• Equipment: NOT startup costs (depreciated separately under MACRS/Section 179)

Tax year decisions (first return):

9. Choose your accounting method

• Cash basis: report income when received, expenses when paid (most small businesses)
• Accrual basis: report income when earned, expenses when incurred (required if inventory > $32M avg receipts for 2026)
• The method elected on the first return is binding without IRS consent (Form 3115) to change

10. Maximize Section 179 and bonus depreciation

• Equipment purchased and placed in service in Year 1: eligible for immediate deduction
• Section 179 limit: $2,500,000 (2024), $2,560,000 (2026 OBBBA)
• Can’t create a loss with Section 179 (use bonus depreciation for that)
• Bonus depreciation: 100% (permanent under OBBBA), CAN create a loss
• Keep purchase receipts and document the “placed in service” date

11. File your tax return by the deadline

• Sole proprietor/single-member LLC: Schedule C with Form 1040, due April 15
• S-Corp: Form 1120-S, due March 15 (K-1 to shareholder)
• Partnership: Form 1065, due March 15 (K-1 to partners)
• Extension: automatic 6-month extension (Form 4868 for individuals, 7004 for entities)
• Extension extends the FILING deadline, NOT the payment deadline

Additional requirements (if applicable):

12. Sales tax registration (if selling taxable goods or services in your state)

13. State and local business licenses (city business tax receipt, occupational license, contractor license)

14. Workers’ compensation insurance (required in most states before hiring first employee)

15. 1099 reporting (issue Form 1099-NEC by January 31 to any unincorporated vendor paid $600+ during the year)