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At the time this book was completed, Congress was considering important tax changes that could affect 2017 tax returns and planning for 2018. Check the online Supplement in February 2018 at www.jklasser.com or www.barbaraweltman.com to see what changes have been enacted and when they are effective.

If you have a great idea for a product or a business and are eager to get started, do not let your enthusiasm be the reason you get off on the wrong foot. Take awhile to consider how you will organize your business. The form of organization your business takes controls how income and deductions are reported to the government on a tax return. Sometimes you have a choice of the type of business organization; other times, circumstances limit your choice. If you have not yet set up your business and do have a choice, this discussion will influence your decision on business organization. If you have already set up your business, you may want to consider changing to another form of organization.

According to the Tax Foundation, 92 % of all businesses in the United States are organized as sole proprietorships, partnerships, limited liability companies (LLCs), or S corporations, all of which are “pass-through” entities. This means that the owners, rather than the businesses, pay tax on business income. Nearly 50 % of the private sector workforce is employed by these pass-through entities. The way in which you set up your business impacts the effective tax rate you pay on your profits (after factoring income taxes and employment taxes). Taxes, however, are only one factor in deciding what type of entity to use for your business.

As you organize your business, consider which type of entity to use after factoring in taxes (federal and state) and other consequences. Also consider whether to change from your current form of business entity to a new one and what it means from a tax perspective. Finally, be sure to obtain your business's federal tax identity number (or a new one when making certain entity changes).

For a further discussion on worker classification, see IRS Publication 15-A, Employer's Supplemental Tax Guide.