Before your first meeting with a CPA about a new business, the questions to ask a CPA when starting a business fall into a short list: entity structure, tax IDs and filings, estimated payments, sales tax, accounting method, deductions, worker classification, owner compensation, retirement plans, recordkeeping, and the CPA’s own fees and scope. Bring all of them to the first conversation. The answers shape how much tax you pay, whether you stay compliant, and how clean your books look when it’s time to file, borrow, or sell.
Which Business Structure Will Cost Me the Least in Tax?
Start here, because entity choice drives almost everything downstream.
A sole proprietorship is the simplest option, but every dollar of net profit is hit with self-employment tax: 12.4% for Social Security and 2.9% for Medicare, totaling 15.3% on top of regular income tax. An additional 0.9% Medicare surtax applies to self-employment income above $200,000 for single filers or $250,000 for joint filers.1Office of the Law Revision Counsel. 26 USC 1401 – Rate of Tax
An S-corporation splits income into a reasonable salary (subject to payroll taxes) and distributions (which escape Social Security and Medicare tax). The salary has to reflect what someone in your role would actually earn; the IRS has successfully challenged owners who paid themselves token wages and took most compensation as distributions.2Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers
A C-corporation pays its own income tax at a flat 21% federal rate, and dividends are taxed again on the owner’s return. That double layer sounds bad, but C-corps make sense for businesses that plan to reinvest profits or seek venture funding. Ask about two provisions in particular. Section 1202 qualified small business stock: hold original-issue C-corp stock for at least five years, keep gross assets under $75 million along the way, and you may exclude 100% of the gain on sale.3Office of the Law Revision Counsel. 26 US Code 1202 – Partial Exclusion for Gain From Certain Small Business Stock Section 1244: if the business fails, individual shareholders of a qualifying small business corporation can deduct losses as ordinary rather than capital, up to $50,000 per year, or $100,000 on a joint return.4Office of the Law Revision Counsel. 26 USC 1244 – Losses on Small Business Stock
One 2026 timing issue to raise directly. The 20% Qualified Business Income deduction under Section 199A, which let pass-through owners deduct up to 20% of qualified business income, expired at the end of 2025.5Internal Revenue Service. Qualified Business Income Deduction Congress may extend or replace it. Ask whether it’s back, because its status changes the math on which entity actually saves you the most.
What Tax ID Do I Need, and Which Return Will I File?
Almost every new business needs an Employer Identification Number, even without employees. Banks require one for a business account, and it goes on virtually every tax form. Apply on IRS Form SS-4; the online application at irs.gov issues a number immediately at no cost, and phone, fax, and mail applications are also available.6Internal Revenue Service. Get an Employer Identification Number7Internal Revenue Service. About Form SS-4, Application for Employer Identification Number
Confirm the return that goes with your entity before you file anything. C-corporations file Form 1120. Partnerships and multi-member LLCs file Form 1065. S-corporations file Form 1120-S.8Internal Revenue Service. Instructions for Form 1120 (2025) Getting the wrong form associated with your EIN creates cleanup work later.
How Do Estimated Tax Payments Work in the First Year?
If you expect to owe $1,000 or more in federal income tax for the year, you’re generally required to pay quarterly. Due dates fall on April 15, June 15, September 15, and January 15 of the following year.9Office of the Law Revision Counsel. 26 USC 6654 – Failure by Individual to Pay Estimated Income Tax
Miss or undershoot a payment, and the IRS charges interest at the federal underpayment rate, which changes quarterly and sits at 7% for the first quarter of 2026.10Internal Revenue Service. Quarterly Interest Rates Interest runs from the date the installment was due until you pay. If you still owe a balance at filing, a separate failure-to-pay penalty of 0.5% per month, up to 25%, can stack on top.11Office of the Law Revision Counsel. 26 US Code 6651 – Failure to File Tax Return or to Pay Tax
Ask specifically about safe harbors. You avoid the estimated tax penalty if you pay at least 90% of the current year’s tax liability or 100% of the prior year’s tax, whichever is smaller. If prior-year adjusted gross income exceeded $150,000, the second threshold rises to 110%.12Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty In year one, with no prior return for the business, your CPA has to project income and build a payment schedule that stays inside those lines.
Do I Need to Collect Sales Tax, and Where?
If you sell taxable goods or services, you likely need a sales tax permit in every state where you have nexus. The 2018 Supreme Court decision in South Dakota v. Wayfair eliminated the old physical-presence rule. Economic activity alone can now trigger the obligation. South Dakota’s law, which the Court upheld, applied to sellers with more than $100,000 in sales or 200 or more transactions in the state annually.13Supreme Court of the United States. South Dakota v. Wayfair, Inc., Et Al. Most states have adopted similar thresholds, though specifics vary.
This matters even for purely online sellers. Digital products delivered across state lines can create nexus in dozens of states from day one. Ask your CPA to identify where you have nexus and to walk you through registering. States are not forgiving when you register, collect, and remit late.
Should I Use Cash or Accrual Accounting?
Cash accounting records income when you receive payment and expenses when you pay them. Accrual records income when earned and expenses when incurred, regardless of when cash moves. Most small businesses start on cash: it’s simpler and gives you more control over the timing of income recognition. If revenue is modest and you don’t carry significant inventory, cash accounting is usually fine.
If you do carry inventory, ask whether the IRS requires accrual for your situation and how inventory should be valued; FIFO and LIFO produce different taxable income, especially when costs are rising.
Have the CPA set up a chart of accounts tailored to the business. This is the framework that categorizes every transaction, and getting it right at the start prevents months of cleanup. Ask which accounting software the CPA works in for real-time collaboration. Platforms like QuickBooks or Xero link to business bank accounts and automate categorization, which cuts data-entry errors and makes tax preparation far more efficient.
What Can I Deduct During the Startup Phase and After?
Section 195 lets you deduct up to $5,000 in startup costs in your first year of operation. The $5,000 allowance phases out dollar-for-dollar once total startup costs exceed $50,000. Anything you can’t deduct immediately is amortized over 180 months, roughly $278 per month.14Office of the Law Revision Counsel. 26 USC 195 – Start-Up Expenditures Startup costs include market research, pre-opening advertising, and travel to scout locations. Have your CPA distinguish true Section 195 startup costs from ordinary operating expenses that begin deducting normally once you open.
For equipment, ask about Section 179. It lets you deduct the full purchase price of qualifying equipment and software in the year you place it in service instead of depreciating over several years.15Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets The annual limit is inflation-adjusted and exceeds $2.5 million, so the cap won’t bind a typical startup.
The home office deduction is available if you use a dedicated space exclusively and regularly as your principal place of business. Exclusively is literal: shared use by family kills it. Two narrow exceptions cover inventory storage and daycare use; everyone else must meet both the exclusive and regular use tests.16Internal Revenue Service. Publication 587 (2025), Business Use of Your Home
If you’re self-employed with a net profit and aren’t eligible for coverage through a spouse’s employer plan, you can generally deduct 100% of health insurance premiums for yourself, your spouse, and your dependents as an above-the-line deduction.17Internal Revenue Service. Instructions for Form 7206 The plan has to be established under your business, so ask about setup before buying a policy.
Travel and meal expenses have documentation rules. The IRS expects the business purpose, amount, date, and people involved for every claim. Digital receipts plus brief notes in your accounting software are enough; a shoe box of paper at year-end is not.
Employees or Contractors, and What Payroll Taxes Kick In?
Worker classification is one of the most expensive things to get wrong. The IRS uses a three-factor analysis:
- Behavioral control: do you direct what the worker does and how they do it?
- Financial control: do you control business aspects of the job, including how the worker is paid, whether expenses are reimbursed, and who provides tools?
- Relationship type: are there written contracts, benefits, or an expectation the relationship will continue indefinitely?
The more control you exercise, the more likely the worker is an employee.18Internal Revenue Service. Independent Contractor (Self-Employed) or Employee? Misclassifying an employee as a contractor means you’ve been skipping payroll withholding, unemployment insurance, and potentially workers’ compensation. Back taxes, penalties, and interest accumulate quickly, and both the IRS and the Department of Labor pursue these cases.
Once you have employees, payroll taxes begin immediately. You withhold federal income tax, Social Security, and Medicare from each paycheck, pay the employer’s share of Social Security and Medicare, and pay Federal Unemployment Tax. Withheld funds are considered held in trust. Failing to remit them triggers the Trust Fund Recovery Penalty, which equals 100% of the unpaid trust fund taxes and can be assessed against you personally even if the business is an LLC or corporation.19Internal Revenue Service. Employment Taxes and the Trust Fund Recovery Penalty The IRS can then reach your personal assets.20Internal Revenue Service. Trust Fund Recovery Penalty
Ask whether the CPA files payroll returns directly or whether you’ll need a separate payroll service. Form 941, the Employer’s Quarterly Federal Tax Return, reports Social Security, Medicare, and withheld income tax each quarter.21Internal Revenue Service. About Form 941, Employer’s Quarterly Federal Tax Return Outsourcing the filing does not shift responsibility; the IRS holds you accountable if a third party drops the ball.22Internal Revenue Service. Instructions for Form 941 (Rev. March 2026)
If I Run an S-Corp, What’s a Reasonable Salary?
The payroll tax savings on S-corp distributions only work if the salary is defensible. Courts look at whether shareholder compensation genuinely reflects the value of services performed; the intent to minimize wages is not a protective factor.2Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers
Ask your CPA to benchmark your salary against comparable roles for your industry, geography, and experience. A $30,000 salary from a business generating $300,000 in profit invites scrutiny. A $120,000 salary from the same business is much harder to challenge. The right number is what a reasonable employer would pay a non-owner to do the same work.
Which Retirement Plan Should I Set Up?
New owners routinely leave retirement planning for later and lose the tax savings that come with it. The main options to walk through:
- SEP IRA: employer contributions up to 25% of compensation, with a 2026 maximum of $72,000. No employee deferrals, which makes it best for solo operators or businesses with few employees.23Internal Revenue Service. SEP Contribution Limits (Including Grandfathered SARSEPs)
- Solo 401(k): available to owners with no employees other than a spouse. You can defer up to $24,500 as the employee, plus employer profit-sharing contributions, with total contributions capped at $72,000 for 2026. An $8,000 catch-up applies at age 50 or older, and those aged 60 through 63 qualify for an $11,250 catch-up under the SECURE 2.0 Act.24Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
- SIMPLE IRA: designed for businesses with 100 or fewer employees. Employees can defer up to $17,000 for 2026; the employer must either match dollar-for-dollar up to 3% of compensation or make a flat 2% nonelective contribution for all eligible employees.25Internal Revenue Service. Retirement Plans FAQs Regarding SIMPLE IRA Plans
Every contribution reduces taxable income for the year. For a new owner in the 24% or 32% bracket, maxing out a Solo 401(k) can produce five-figure tax savings. Setup timing matters, so ask about the deadlines for establishing each plan.
How Long Do I Need to Keep Business Records?
The IRS’s general rule is three years from the date you filed the return. Several situations extend that:
- Underreported income by more than 25%: six years.
- Worthless securities or bad debt deduction: seven years.
- Employment tax records: at least four years after the tax is due or paid, whichever is later.
- No return filed or fraudulent return: indefinitely.
Records tied to property, including equipment, vehicles, and real estate, should be kept until the statute of limitations expires for the year you dispose of the asset. Depreciation and gain-or-loss calculations rely on them.26Internal Revenue Service. How Long Should I Keep Records?
On day one, open a dedicated business bank account, deposit all business receipts into it, and pay all business expenses from it. The IRS recommends identifying the source of every deposit as business income, personal funds, or loans.27Internal Revenue Service. Starting a Business and Keeping Records Clean separation between business and personal money is what makes deductions and audits manageable.
What Will This Cost, and What Does the Engagement Cover?
CPA hourly rates for small business work generally run from $150 to $450, depending on firm size, market, and complexity. Some CPAs offer flat monthly retainers, which can help a startup budget. Ask upfront whether the quoted fee covers only annual tax preparation or also ongoing advisory work such as quarterly estimated tax calculations, payroll filings, and bookkeeping review.
Request a written engagement letter before work begins. A good one spells out which services will be performed, which tax forms will be prepared, who provides supporting documents, and what falls outside the scope. It should note that the CPA is not responsible for detecting fraud or internal control weaknesses unless the engagement specifically covers them. That letter prevents the “I thought that was included” conversations that sour the relationship.
Agree on how you’ll exchange sensitive documents. Emailing tax returns and bank statements as unencrypted attachments is a security risk; most firms use encrypted client portals. Set a regular communication schedule too, especially around quarterly deadlines and year-end planning. A CPA who goes quiet between January and April isn’t offering the kind of relationship a new business needs.