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With everything that small business owners need to do and take care of, filing taxes can be an overwhelming and time-consuming process. Of course, the specific steps you should follow as a small business owner vary depending on the type of business you own, but there are some general tips that can help all small business owners survive the tax filing process without losing your sanity.
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Keep organized records
It may seem like an insignificant step, but keeping your records organized throughout the year will help you when it comes time to file your taxes. You may opt for a filing cabinet, an electronic scanner that digitizes all of your receipts, invoices, and tax forms, or computer program and spreadsheet to track all of your transactions, but whatever system of organization you use should be consistent throughout the year. When you have all of your documents together, filling out forms becomes a much simpler process.
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Know which forms you need to use
If you plan to do your taxes on your own, you must determine which IRS tax forms you need to use. Sole proprietors and sole owners of LLCs may use a Schedule C attachment to your personal income tax return for recording income and expenses. Corporations must use a separate corporate tax return with Form 1120. If you have hired independent contractors or if you have employees, you will need to take care of W-2 and 1099 forms (there’s software that can help you immensely).
There are various tax software programs you can use to assist you in filing your taxes and knowing which forms to use. Some programs also include document management systems for your records so that you have everything that you need for tax season in one program.
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Don’t procrastinate
If you wait to file your taxes, you risk paying steep penalties. Knowing the deadlines for your tax filing dates and various forms is key. If you use a Schedule C, it will become part of your Federal 1040 form and will need to be filed by the typical April 15 deadline. However, if you will be filing Form 1120, you will need to file by March 15, in most cases. If you have not been organized and have not yet chosen a tax preparation software or professional tax preparer, you should consider filing a tax extension. Keep in mind that you still may be subject to penalty and interest charges even if you file and are granted a tax extension, so it’s best to file by your deadlines.
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Consider filing your taxes online
Some small business owners think that filing tax forms online is a service only for larger businesses and corporations, but that isn’t the case. Most small businesses are eligible for the E-File system, which makes submitting taxes much faster and easier and reduces the amount of paperwork and hassle for business owners. Filing online is another way to be sure to meet tax deadlines.
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Remember your deductions
For many small business owners, deductions are a financial godsend. If you have a home office, you should consider taking the home office deduction. To qualify, you need a dedicated space in the home that is used solely for the business. There are two ways to calculate the deduction – adding up utilities, rent, etc. and multiplying that sum by the percentage of your home that is your office space, or taking a deduction per square foot of office space – so it’s a good idea to calculate using both methods and determine which will save you more money.
Office equipment and supplies used throughout the year also count toward deductions as do some insurance costs, travel expenses, and entertaining expenses. Be sure to check with a professional tax preparer to maximize your deductions.
The tax filing process can be daunting for anyone, but it can be especially difficult for small business owners. If you follow these five tips, you should have an easier time this year than in years past.
Jason Scott is a personal trainer and caregiver to his elderly mom. He enjoys sharing his fitness knowledge on his website.
Image via Pixabay by stevepb
