Understanding Tax Codes for Your Business

Understanding Tax Codes for Your Business

Taxes aren’t the most fun aspect of running a business, but filing a tax return is a necessary task. The U.S. tax codes for business are quite complex and, unfortunately, the government isn’t going to take misunderstanding them as an excuse for incorrectly filing a tax return.

Businesses (and individuals) must comply, so you want to get it right. If you don’t, you and/or your company can face stiff penalties, even if you accidentally were not compliant with tax laws. On the plus side, in their complexity, tax codes for businesses allow for opportunities to reduce taxes with deductions and credits.

In this post, we’ll discuss what IRS tax codes are, provide tips to help business owners better understand what they are for, and explain how knowing more about tax codes can help make filing easier.

What are IRS Tax Codes?

The U.S. Internal Revenue Service (IRS) tax code is a lengthy and comprehensive document that outlines tax laws passed by Congress and how they will be executed and enforced by the IRS. Many often wonder: what are tax codes? The term “tax codes” imposed by the IRS actually can be interpreted and/or used in two different ways:

a) a set of laws such as The Internal Revenue Code (IRC) or

b) a specific law within the IRC

The tax codes dictate how much in taxes is due and stipulate any credits and/or deductions individuals and businesses can take to reduce their tax liability.

U.S. Treasury’s role in federal tax code

The U.S. Treasury Department plays an important role in the IRS tax code. The federal tax regulations, also referred to as Treasury regulations, are “officially” interpreted by the Treasury Department and provide directions to U.S. taxpayers on how to comply with IRC requirements. The federal agency also gives explanations and examples of how the law is used.

As a taxpayer, you can read Title 26 as published by the Government Printing Office, which can be accessed and searched online through the official IRS website or the Code of U.S. Regulations website run by the National Archives. Here’s how you can find what you’re looking for:

● Look up “Title 26: Internal Revenue” to see the table of contents for up-to-date Treasury regulations

● “Go” to specific sections of Title 26 to find the current rules for a specific treasury regulation

●     Use the “search” feature to find what you need (e.g., you can search “gross income”)

Your local library will also offer pamphlets about specific tax laws.

Compliance with tax codes isn’t optional

When filing your or your company’s tax return, you must comply with all tax rules. Ignorance of the law is not an excuse, and the IRS will not be forgiving. By keeping up with the rules, which change frequently, you can better comply with IRC requirements, avoid expensive penalties, and lower your chances of getting audited by the IRS.Tip: You can also look for more information about revisions to specific tax laws here.

Interpreting the Tax Code

Many business owners find the tax element of running a company to be challenging. While you need to comply with the components of the federal tax code, you don’t have to actually read tax codes to follow them. The process is still complex, but you should know basic information.

Check out IRS publications for guidance

The IRS puts out publications to make interpreting the tax code much easier and more effective. Common ones to explore that will likely apply to you and your small business include:

Your Rights as a Taxpayer (Publication 1)

This is the publication you should explore first as it provides readers with the “The Taxpayer Bill of Rights,” explains taxpayer rights, and outlines the processes for examination, appeal, collection, and refunds as they relate to filing taxes.

Tax Guide for Small Business (Publication 334)

This guide offers general information about federal tax laws for self-employed individuals and provides details about business income, expenses, and applicable tax credits.

Small Business Health Care Tax Credit (Publication 4862)

This publication outlines eligibility guidelines and provides guidance on how to apply this valuable tax credit to small businesses.

Federal Income Tax Withholding Methods (Publication 15-T)

If you have employees, this publication is helpful since it outlines how to properly calculate federal income tax withholding from your employees’ wages.

Understanding Your EIN (Publication 1635)

A comprehensive and detailed pamphlet outlining what an EIN is, who is eligible, who is required, when a new EIN is needed, and other relevant details associated with using an EIN.

Starting a Business and Keeping Records (Publication 583)

In this publication, the IRS reiterates that business owners need to know their tax responsibilities in regard to launching a business and maintaining good records. The federal agency also poses helpful – and important – information regarding EINs and business structures, along with posing questions for business owners to ask themselves to help provide some direction and guidance.

Retirement Plans for Small Business (Publication 560 – 2023)

Small business owners don’t have pensions or their employers establishing their retirement plans. Essentially, entrepreneurs must usually fend for themselves when it comes to saving for retirement. Publication 560 explains the choices business owners have, including SEP (simplified employee pension) plans, SIMPLE (savings incentive match plan for employees) plans, and Qualified plans (also called H.R. 10 plans or Keogh plans).

How To Depreciate Property (Publication 946)

The IRS explains how to recover the cost of business or income-producing property through the use of deductions. To depreciate property in a business tax return: a) you must own it, b) the property must be utilized in your business or income-producing activity, c) it must have a useful life, d) it must be expected to be in use for a period of time exceeding one year.

Tip: Use specific keywords in the IRS’ search tool to find any specific rules you need to see and how they might affect your small business tax return.

Work with a tax professional

If you find filing taxes highly time-consuming or difficult to follow, it would be to your advantage to work with a professional tax expert, such as an accountant, attorney, or other tax specialist. Your tax expert will be up-to-date on the laws and will know which ones will apply to your business

At the very minimum, if you plan to file yourself, you should use tax software so you’ll have some guidance in walking you through the tax laws that might apply to your situation.

Obtain your Employer Identification Number (EIN)

Businesses that already have hired employees will need to obtain an EIN by law. If your company is a startup, you may not have taken this step, or if you’re the only employee, theoretically, you do not need an EIN.

Whatever the case, every business could benefit from obtaining an EIN, even if they are not required to do so by law. Benefits include:

● Future ability to hire employees without having to wait

● Obtain access to better business loan opportunities

● File business tax returns

● Avoid needing to use a personal Social Security number for business purposes

●     An EIN looks more professional than using your SSN

Ready to apply to obtain an EIN? Here are the steps you need to take.

● Gather the required documentation, which will include the following:

○ Legal business name

○ DBA (“doing business as”) designation

○ Business address and phone number

○ Date business commenced, either as a startup or acquisition

● List the name of the person responsible for the business

○ Include the responsible person’s (this is likely you) SSN or ITIN

● Note the business entity type of your company (e.g., sole proprietorship, partnership, LLC, S-Corp, or C-Corp)

● List your company’s tax structure (e.g.

● Select the reason why you need to apply for an EIN

● Share the estimated number of employees you have or plan to hire

● Answer a series of tax-related questions

●     Review your application to make sure you have correctly and fully answered all questions

Once you have your EIN application materials assembled, entered, and reviewed, you can submit your application. At this time, you are waiting to receive your EIN.


Learning the general basics of the IRS tax code is important. While you do not need to memorize codes, it’s a good idea to become familiar with the rules that apply to your company and, in times of need, know where to seek guidance so you can quickly get an answer or learn how to resolve the problem.

Accessing the various government publications, along with being able to reach out to find information online and/or organizations to help you, can make it much easier for small business owners to interpret any applicable tax laws.

Taxes are usually not the most enjoyable component of running a business, but it is necessary to understand, so you can set yourself up for success and avoid being penalized for making tax mistakes.

Written by Maurice Mallory