Tax Tips Small Business Deduction – There are two types of people come tax time. You have those who are excited and file their taxes on the first day. And you have those who moan and cry and file at the last minute. Who are you?
Maybe you’re the other one—the person whose least favorite thing in the world is filing your small business tax return. If so, you need a small business preparation checklist.
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Or maybe you’re the first – the one who can’t wait to file your business tax return. If so, you may have already created your own small business tax return checklist and want to compare.
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Either way, read on for our small business tax improvement prep checklist… and say goodbye to the dead.
Some might argue that checking things off their to-do list is fun. Fun or not, using a checklist can help you stay organized and accurate. And who will deduct taxes or pay penalties because of a poor return?
Use this small business tax preparation checklist this tax season to help you stay on top of your responsibilities:
Your first task on the Small Business Tax Prep Checklist is to figure out which form to file. There is no standard form that all small business owners use – your form will depend on your business entity.
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Are you a sole proprietor or single-member LLC owner? Use Schedule C, Profit or Loss from Business, and attach it to your personal tax return (Form 1040).
Or are you a partner in a partnership or co-owner of a multi-member LLC? If so, file Form 1065, US Return of Partnership Income, and attach Schedule K-1 (Form 1065).
And for those of you who need a corporate tax preparation checklist, your tax form is Form 1120, US Corporation Income Tax Return. Multi-member LLCs, which are taxed as corporations, also use Form 1120.
Last but not least, the tax form you will need if you are structured as an S Corp is Form 1120-S, US Income Tax Return for an S Corporation.
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The next step in your small business tax preparation checklist is knowing when to file business taxes. Your application deadline depends on your company structure.
Sole proprietors, sole proprietorship LLCs, multi-member LLCs taxed as corporations, and corporations that end their tax year on December 31st must file by April 15th. This is the same due date as personal tax returns.
If 15 March or 15 April falls on a weekend or public holiday, you have until the next working day to submit the application.
All steps in the Small Business Tax Prep Checklist are important. But this is probably one of the longest, most complicated and most important parts of preparing an accurate tax form.
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Completing tax information is not a guessing game. You cannot enter arbitrary income and expenses based on a hazy memory. You need to have hard facts in front of you if you want to complete an accurate return.
Find your Taxpayer Identification Number. This is significant. How else will the IRS be able to identify your business? Depending on your company structure and whether you have employees, you can use your social security number. Otherwise, you must use your Federal Employer Identification Number (FEIN).
Then you need to collect and analyze your balance sheet and income statement. If you use accounting software, generating these reports should be easy. Your income statement shows the income, expenses and bottom line for your business during the year. And your balance sheet shows your assets, liabilities and equity.
In addition to your financial statements, you will need some supporting documents. Collect your receipts, bank statements, credit card statements and payroll records to back up your work.
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Also, be prepared to find copies of your estimated tax payments. And find your company’s tax return from the previous year.
The next stop on the tax preparation train is to find out if you qualify for a tax break. Business tax credits and tax credits are a great way to reduce your tax liability. And depending on your business, you may qualify for more.
Businesses can claim tax refunds and credits for qualifying expenses. In general, tax credits encourage businesses to take some kind of action that benefits others (eg, providing reasonable accommodations).
Before you claim a credit or deduction, make sure you have the documentation to back it up. And you need to understand the rules of the IRS. For example, you cannot claim a home office tax deduction unless you meet certain requirements from the IRS.
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If you are self-employed, you must make estimated tax payments to cover your obligations. No one withholds tax from your salary if you are self-employed.
Business owners pay estimated tax quarterly. If you have made estimated tax payments during the year, you can deduct these from your total tax liability.
Instead of putting together something questionable, you can decide to do a business tax extension. A file extension gives you more time to complete and file your small business tax returns.
If you need an extension on your tax return, you must file the IRS extension form by the due date of your tax return.
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You may need to prepare for a situation where you cannot afford to pay your tax liability in one lump sum.
While estimated tax payments help, you may have miscalculated your liability and left too much of an expense at tax time. If this is the case, know your options and pursue one that meets your needs.
Regardless of which tax payment option you follow with the IRS, you must still file your tax return on time (unless you received a filing extension).
Once you’ve gathered all your records and made some preliminary decisions about what deductions and credits you can claim, it’s time to approach your accountant.
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Your accountant can help check that your return is correct. They may also find other deductions or credits you can claim. And an accountant can help you through the filing process to make sure your return is solid.
Finally, you’ve reached the last box to complete your small business tax return checklist. Once you and your accountant have given the go-ahead, it’s time to file.
You can submit your company’s tax return either e-file or paper. E-filing is a faster process than paper filing and you will receive a quick confirmation that your filing has gone through.
If you decide to e-file through the IRS system, you can make tax payments through the Electronic Federal Tax Payment System (EFTPS).
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Do you want to make tax time easier? Track your expenses and income throughout the year with Patriot’s online accounting software. Get your free trial now!
Get started with free payroll setup and enjoy free expert support. Try our payroll software for a free, no-obligation 30-day trial. Looking for a way to reduce the cost of running a business and get some money back in your bank account at tax time? Look no further than the small business tax credit.
As a small business, you have the right to claim tax credits that reduce the tax you pay to the government. Businesses of all sizes usually file tax credits (and their cousin, tax returns) as part of their annual tax filing process.
However, tax time tends to induce fear and confusion in many business owners. That’s why we break down everything you need to know about small business tax credits, including:
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This guide helps small business owners understand the power of tax credits and find out which ones are relevant to their business.
Governments around the world “reward” individuals and businesses with tax credits for small and large actions such as boosting the economy, fighting climate change, being an employer and improving the lives of other people.
Tax credits are offered to businesses as incentives for activities that benefit employees, specific industries and society as a whole. For example, companies can apply for tax credits to carry out research and development (improve society/industry), provide benefits to their employees (improve people’s lives) and buy electric vehicles (fight climate change).
It’s important to be aware of tax credits that your small business may be eligible for because they can make a dramatic difference to your bottom line. That’s because tax credits reduce the actual tax you pay as a small business owner.
Small Business Tax Preparation Checklist
In fact, small business tax credits are dollar for dollar. This means that every dollar of credit reduces your taxes by a full dollar. This is huge for small businesses as it allows you to defray some of the costs of running a business and retain the much needed capital that allows you to grow and thrive.
For example, if you owe $15,000 in small business taxes but claim a $5,000 tax credit, you can deduct the entire amount from your tax bill. Your new tax bill would be $10,000. Small business tax credits are increasing fast!
It literally pays attention to the way small business tax credits – and your own business – are changing. This is an activity that you and your tax professional will want to plan for each year at tax time.
What is the difference between a tax return and a tax deduction? Being aware of tax credits can make a dramatic difference to your bottom line.
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