The Internal Revenue Service recently issued its top seven things that people starting new businesses should keep in mind regarding their federal tax requirements.

1. Decide which type of business entity you want to set up. Sole proprietorship, partnership, corporation and S corporation are the most common types. This will determine which tax forms you're required to file.

2. The business type determines which taxes you pay and how you pay them. The typical types of business taxes are income tax, self-employment tax, employment tax and excise tax.

3. Businesses typically need an Employer Identification Number. You can apply online or get information about whether you'll need an ID number at IRS.gov.

4. Keep good records. Any system of recordkeeping is fine as long as it clearly reflects your business's income and expenses. Different businesses will require different types of records. But the law doesn't require special records, except in a few cases.

5. Each business taxpayer is required to calculate income on the basis of a tax year, which is an annual accounting period. Businesses typically use either the calendar year or their fiscal year.

6. Taxpayers have to use a consistent accounting method. This involves the rules for reporting income and expenses. Most use either the cash method or the accrual method. The cash method generally counts income and expenses when they are received or paid. Accrual involves reporting them when they are earned or incurred.

7. Go to the Business section of IRS.gov for more information to help entrepreneurs get their business started.

You might see plenty of businesses left and right struggling mightily through the economic downturn. Some have problems that are beyond repair, but others might represent a buying opportunity for the healthier companies out there.

Certainly, some of these companies can be had for cheap prices. But how do you tell if a competitor or peer is worth buying or would simply mean adding problems to your own company?

The issue for many buyers is simple. A company is struggling and looking to sell for a reasonable price. It offers plenty of potential benefits to the prospective buyer. But especially in a weak economy, there could be any number of problems plaguing it: faltering sales, too much debt, difficulty in collecting receivables, falling order backlogs ... the list seems endless. On the other hand, if the problems can be resolved with a new, financially stable owner, your company can thrive as a result.

The trick is to tell what you're getting into before you jump into a deal. That's where due diligence comes in. Accounting and business consultant RSM McGladrey Inc wrote a recent white paper giving business owners a few pointers on how to separate the wheat from the chaff.

1) Start by looking at results for the trailing 12 months. But it's not that simple. Companies can make accounting changes or accelerate revenue in an effort to make the numbers look better than they are. RSM McGladrey advises buyers to adjust for such changes to normalize the figures.

2) A decline in backlog is another sign of trouble. Take a look at whether the backlogged products are even marketable any longer. Some companies will be slow to shift orders from backlogged to canceled.

3) It's important to evaluate the revenue stream, too. The trend is important, of course. But also take a look at why customers might be leaving or cutting back their order sizes. And evaluate the customer base's financial strength. If those customers are troubled, it might get pretty tough to collect from them or to sustain sales. Beware of deals being offered to keep sales up, even if those deals slash margins.

4) Speaking of profit margins, they're a huge signal of the company's health. Companies often make moves that can cut into margins in tough times. Even things such as cutting out unprofitable lines, RSM McGladrey said, can mean overhead costs get distributed over higher-profiting products, lowering those products' margins.

5) Receivables can give buyers another red flag. You'll want to check how much more slowly receivables are being collected, if customers are disputing their bills or if too many receivables are going uncollected.

6) It might not seem as obvious as looking at receivables, but accounts payable can also give buyers a sign of a target company's health. If the company is paying more slowly, it might be running into disputes with its vendors. That can cause some vendors to drop the company as a customer, leaving the target company hanging. Make sure its relationships with suppliers are still solid, or you could be walking into a load of trouble.

7) Watch inventory levels, too. Rising inventories can be a clear sign that sales are falling. But it can also mean that customers are struggling and possibly returning more goods to the company, RSM McGladrey said.
Payroll can serve as another tipoff to trouble. Cuts in pay or bonuses can hurt morale and lead to the loss of key employees, RSM McGladrey said. Also keep an eye on job cuts the company might have made. If it has cut too deeply, a buyer might have to restore some jobs to keep the business growing.

8) Watch out for one-time or unusual items that impact results. Items such as restructuring charges, severance payments and inventory writedowns can have a huge impact. Be sure to properly evaluate the short- and longer-term effects of these items.

If you're thinking about buying, you can't underestimate the value of digging deep into the numbers to find out the underlying story of a troubled company.

In this stressed economy, sellers have more motive than ever to mask problems and misstate earnings to hide slumping numbers,RSM McGladrey said in its white paper.

That means buyers need more in-depth disclosure developed during due diligence and additional comfort that the seller's represented information is accurate.

The bottom line is that great deals can be had in this economy, but you have to do your homework.

The Internal Revenue Service has taken steps to allow companies that are in financial trouble to cut or eliminate their contributions to 401(k) plans without penalty.
The IRS recently put out proposed regulations that allow employers who have a "substantial business hardship" to lower or suspend their safe-harbor non-elective contributions to 401(k) plans. Employers were previously required to make their contributions for the entire year unless they terminated the plan.

The change is aimed at allowing employers in financial distress to save money by making cuts to their 401(k) contributions without being forced to halt the entire plan.
The change requires businesses to provide adequate notice - typically at least 30 days - to employees explaining the reduction or suspension of employer contributions and the procedures for employees to change their own contributions to the plan. Employees also must have a reasonable opportunity to change their contributions before the change takes effect.

The IRS makes a subjective judgment on whether a business is operating at a substantial hardship. Factors include whether the employer is losing money, whether the employer's industry is losing jobs and whether that industry's sales and profits are in decline.

The IRS calculated that implementing the changes could save small businesses an average of 1.5 percent of payroll if the changes are implemented by mid-year. It figures that the cost of making the changes ranges from $500 to $1,000. But a small business with a yearly payroll of $1 million would save $15,000.

Taxpayers can use the proposed regulations until the IRS issues final regulations.