Running a business is tough work. Time flies by quickly, and before you know it, it’s tax season again. Business owners dread managing their taxes and who can blame them? Even people seasoned in the industry find taxes difficult. But every business owner is responsible for properly filing and paying their taxes to the government.
Doing taxes shouldn’t always be tedious. With the right preparations, you can breeze through the tax season. You’ve come to the perfect place if you’re a new business owner who struggles throughout tax season. Below are important tax preparation tips that will assist you in handling your business taxes.
- Know the tax deadlines
If you want to be ahead of your taxes, it is only right to know the deadlines. Unfortunately, it’s common for business owners to scramble when the deadline approaches. Forgetting the dates will only make things harder for you. There are several documents you need to prepare to file taxes correctly, and you need to allot enough time for that.
Depending on the sort of business you own, there may be different tax deadlines. But for sole proprietors and C corporations, you need to file your tax reports before April 15th of the fiscal year. Deadlines are subject to change, and know that you can file for an extension. Subscribe to updates from your local tax collection agency, so you’re always on schedule.
- Collect all necessary financial documents and forms
When filing your taxes, you need to attach several documents for proof and validation. Some of the business documents you need to prepare are revenue reports, payroll documents, expense reports, and bank and credit card statements.
Additionally, you need to get ready to fill out and submit the necessary tax papers. Every individual should have tax form 1040. Depending on the type of business, it is accompanied by form schedule C, form 1120 or 1120s, or form schedule K-1. Taxpayers can download these forms directly from tax agency websites.
- Process your tax deductions
Many small business owners don’t know how to work their way around tax deductions. So, instead, they tighten their resources to prepare for the taxes they need to pay. But there are business expenses that can translate to deductions, enabling you to spend more on your business while lessening your taxes.
The following is a list of small business expenses that you can claim as tax deductions:
- Education: Business-related educational content like training sessions, seminars, and workshops.
- License Fees: Legal expenses your business paid for, like bookkeeping business fees, accounting services, and professional fees.
- Property Expenses: Building rentals and creating a home office are valid property expenses. You can present a photo as proof of a home office, or a lease contract when renting your business premises.
- Travel Expenses: Hotel accommodations, transportation, and meal costs from business-related trips can be written off as tax deductions.
- Marketing Expenses: All expenses that cover advertising, promotions, and live events—physical or digital—are included.
Also, take note of non-deductible expenses, like private funds in the middle market, personal loans, expenses for entertainment, and gifts you give to your employees.
- Know the taxes you need to pay
Businesses pay different types of taxes, but not all businesses pay every type of tax. If you’re unsure, tax collection agencies have guidelines to help you identify the proper taxes to pay. Following that, below are some typical taxes that companies are obliged to pay.
Every business that earns a profit is subject to paying income taxes. Depending on what state you have your business in, the laws of income tax collection may vary. But no matter what type of business you have, the bulk of your tax obligations comes from your income taxes.
Sales tax payments fall on your customers. Every product you sell has a corresponding sales tax. Depending on what state you are in, sales tax rates may vary. But it’s the business owner’s responsibility to collect and remit them to tax collection agencies.
Payroll taxes are only applicable to businesses with employees. As the employer, these tax deductions to their paycheck are your responsibility. These payroll taxes go to social security contributions, medicare, and insurance.
There are special taxes that apply to some types of goods. For example, excise taxes are imposed on alcoholic beverages, cigarettes, and fuel. Other taxes like gross receipts and franchise taxes are obligations, too, but corporations are the ones paying for them.
- Separate your personal income and business income
You might be earning your income from different sources. It’s crucial to make a distinction between your personal and corporate incomes for this reason. Choose the best bank accounts to help you track where the money is coming from. You also have to pay taxes for your personal income, but you don’t want to combine it with your business taxes.
This can lead to confusion in tax calculations which can cause you to pay the wrong amount. When overcharged, the money will come back eventually through income tax returns but it takes a while, so it’s always wise to be accurate when it comes time to pay.
- Get help from tax professionals
Even big corporations have a team of professionals to manage their taxes. Small businesses will benefit from these professionals as well. So instead of wasting your time on taxes you can’t figure out, let the professionals handle them.
Here are some advantages you get when hiring tax professionals:
- Efficiency: A professional handling your tax ensures that all your financial data and statements are correct and valid. This will make the process faster, more convenient, and less prone to errors.
- Helps with Auditing: It’s rare for small businesses to get audited, but in cases where the IRS conducts an audit, professionals can answer for your business.
- Up-to-date with Changes: Taxation laws can change, and professionals are always updated on these changes to ensure that you file your taxes properly. Errors can be costly, especially to small businesses, because it means paying fees and penalties.
- A Learning Opportunity: While the professionals do the taxes for your business, take advantage of it and make it a learning experience. At some point, you need to get involved in doing your own taxes, and familiarizing yourself with the process will make you a more responsible business owner.
You cannot run away from managing and paying your taxes when you have a business. Although it is a burden shared by many business owners, it need not slow you down. Tax preparation is the key to a successful taxation season. Preparing all the documents and forms ahead of time will help you avoid complications when the payment deadline comes.
Additionally, the best thing you can do is hire a tax professional. Their taxation knowledge will ensure that you file your taxes accurately and save you time. We hope these six quick, easy tax preparation practices aid you in the upcoming tax season.
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