If you're running a business, be it a sole proprietorship or in partnership, you must be aware of the complexities in filling your income tax forms. While tax laws vary for every year, one thing that always remains constant is your principal business code number. In tax forms, you're required to enter this important code otherwise your business identity may risk dilution. These six digit codes are essential identification numbers for every business owner in the US, irrespective of the type of business one may own.
About Principal Business Code
Written on the top of annual income tax return forms, these six digit codes are the keys to identify the entity who is managing a business, its revenues, assets, expenditures and funds. The Internal Revenue Service (IRS), the main US government agency that works for collecting taxes and manages tax law enforcements, uses the principal business code as an identification of the owner of the business and also of the category of the business.
By visiting the IRS website, you can know the code of your business. Following are the categories in which you can look for the correct principal business code for your own business. When you visit the Internal Revenue Service official website, go under the business code section and you'll find that under each category, there are codes for specific businesses. You can make a note of that code depending on your business category. You must carefully double check your business code, as it is a key to your financial information to the tax department. You may land up in trouble if you're using a principal business code that is not yours. Owing the tremendous growth of the Internet, it is now very easy to know the code by just visiting the IRS website.
Federal Principal Business Code: History
It was in the year 1934, that The U.S. Office of Statistical Standards came up with the idea of grouping companies based on categories. It took nearly four years for the idea to be materialized. In 1938, Standardized Industry Classification codes (SIC) was launched. It was the first list of businesses classified by industry type. Further, it was in 1941 that the first complete edition of SIC codes was launched.
For nearly 50 years, these SIC codes were used as a primary source of business classification. In 1997, however, owing to the efforts of the U.S. Census Bureau, the new North American Industry Classification System, or NAICS, was introduced and it gradually replaced the old SIC codes. NAICS codes are of six digits, and they contain one extra digit for more specific classification and another extra digit for country classification. Compared to NAICS, SIC codes only represented business codes for only US. So you can also visit the NAICS official website to know the principal business code for your businesses.
It is very important for business owners to enter correct code as that also helps them in income tax audits. Wrong entry of the business code may lead you to pay more tax than what you're entitled to, or it may also bring you under the scanner of income tax department due to differences in data mentioned in your income tax documents. So if you haven't yet found the principal business code of your business, (may be you're starting a business and you haven't yet filed for an income tax), visit the IRS or NAICS website to know more about your business code.