Make your favorite season a stress-free tax one. We know that your time and resources are valuable. It’s why we’ve compiled our top 5 tips for tax preparation for small businesses from the experts at Ceterus.
Let’s be honest. Tax season can be overwhelming, especially if this is your first year filing taxes as a business. Getting it right is essential, so you don’t face any tax penalties or inaccurate payments down the line.
In this blog post, we will share with you some valuable tips on preparing your return to avoid potential issues and maximize possible deductions that can help reduce your overall bill by the deadline.
We break down some of the best ways to start tax preparation for small businesses before filing. It can make all the difference during tax time! Before we get to these hot tips, let’s discuss the different types of taxes and their deadlines.
By definition, income tax is imposed by the government directly on income for both individuals and businesses. Governments at local, state, and federal levels collect income taxes.
Regarding federal income tax, a business’s responsibility may depend on its company type. Businesses earning net profits in a given year must pay taxes – unless they are managed as partnerships, LLCs filing as partnerships, or S-corps. In this case, owners cover any incurred taxation at an individual level through their personal returns – freeing up resources for continued growth and development throughout the enterprise.
For state income taxes, a business earning a net income in the District of Columbia or any of the 41 states that collect income taxes must pay them. Incidentally, companies with multiple locations across different tax-collecting regions will need to file and pay multiple times. To ensure everything is correct and to avoid expensive fees, small businesses should seek guidance from a tax professional about filing responsibilities specific to their particular situation.
Local taxes vary city by city as some cities do not charge income taxes, while the definition of a taxable presence differs as well. Business owners should be up to speed on the local tax laws of all locations where their business is active as it could present a tax liability.
Even businesses that are operating at a loss (as in not producing net income) still need to report the loss with additional documents.
Deadlines for federal, state, and local taxes vary. The filing timeframe for federal taxes varies depending on the type of business operations. For example, Partnership Returns (IRS Form 1065) and S-corporation Returns (IRS Form 1120-S) have a standard deadline of March 15 or September 15 if extended. C-Corporation Income Tax returns must be submitted by April 15th each year, with an October extension available if needed. At the same time, state and local income tax deadlines differ by location.
Other Important Tax Info
Besides income taxes, there are also payroll, sales, and franchise taxes that small business owners need to be aware of. Sales tax and payroll tax filing and payment deadlines vary. In comparison, franchise taxes are often filed with business income tax returns.
Tax Prep Tips
Now that you’ve brushed up on the basics concerning the different types of taxes, the next step is to ensure that everything is squared away and ready for the tax season.
Check out our short list of simple questions regarding tax preparation for small businesses, and ask yourself them to guarantee a smooth tax prep process.
1 | Do you know what forms you must file and their deadlines?
As discussed above, what tax forms businesses need to file depends on their business type. Companies should get ahead of the game and ensure a straightforward tax season by familiarizing themselves with their form requirements and meeting all relevant deadlines.
The IRS mandates that tax returns are filed by crucial deadlines. In addition to the required IRS deadlines, there are some key dates to acquaint yourself with to ensure you are well-prepared for tax season.
2 | What financial records do you need to gather?
Filing your business taxes can be a lengthy process. To ensure accuracy and compliance with the IRS, you will need to gather important documents such as your taxpayer identification number (EIN or SSN), income statement, balance sheet, and receipts for all purchases – even cash ones!
Additionally, you’ll require both personal and business bank statements if they are separate accounts; credit card statements, payroll information including 1099 forms received or sent out throughout the year, plus last year’s tax return might also come in handy. Have these at hand before getting started on filing those taxes!
Once documents are in order, figures need to be confirmed to ensure they reflect months of accurate bookkeeping. If books aren’t kept straight throughout the year, those numbers need to get evaluated to get an up-to-date financial overview.
3 | What tax credits and deductions have you determined?
When determining your tax credits and deductions, it is important to recognize that filing personal and business income taxes is quite different. As a result, it could take some extra time to finalize your deductions.
As a small business owner, ensure you’re taking full advantage of the tax benefits available to decrease your annual obligation. Be aware of where deductions and credits exist and have proper documentation to back your claims.
The good news about deductions is that this is where your business can save a pretty penny. Do you have business mileage that’s accumulated? That’s deductible. Home office-related expenses? That’s deductible too. And don’t forget meals, entertainment or travel costs connected with client dealings and employee training events – those are also deductible! Plus, if your business made any generous charitable donations over the year, that is also deductible!
Tax credits are available if you are making space for employees with disabilities and paying for employee health insurance.
Pro Tip! Don’t forget to deduct what you’ve already paid throughout the year. Remember that self-employed small business owners must pay their estimated taxes throughout the year, while other entrepreneurs may opt for quarterly payments. Missing out on what’s already been paid could make a big difference come tax time!
4 | Are you ready to file? If not, request an extension.
As you’re probably coming to find out, filing your business taxes is tedious and time-consuming. If you need more time, you can always request an extension! But please note you’ll still need to pay when you request your extension. An extension is only for filing taxes, and payments will still be due by the deadline.
To do this, complete and submit IRS Form 7004 and/or IRS Form 4868 before the deadline. You can either use e-filing or send a paper copy for easy submission.
5 | All done? Time to Plan, Review & File Tax Forms
As you make your final calculations and complete your tax forms, you should start to plan your tax payment. Payment plans are available with the IRS if estimates and payments from throughout the year are off and you can’t afford to make a full payment.
If you did all the work of completing your taxes yourself, make sure to get an expert’s eye to double-check everything. Hire a CPA, tax professional, or accountant to avoid missing any mistakes.
In the case that you have hired an expert to prepare and file your taxes for you, all you need to do is review the numbers afterward. Be sure to remember that the preparer’s tax identification number will need to be listed on your forms when you submit your taxes.
Now, all you have to do is file your taxes! There are a few different ways to do this. You can either have the tax preparer file for you, file by mail yourself -taking care to get everything postmarked before the tax deadline or e-file.
Ceterus As Your Tax Resource
Don’t let taxes weigh you down. We are number crunchers, so you don’t have to be! Put a financial sensei in your corner to help lighten your load and free up time for bigger things.
At Ceterus, we provide clear financial insights, tech-enabled bookkeeping, and tax preparation so that you can build a stronger future as a franchise or small business owner, knowing that your returns are in trusted hands. Pairing top-of-the-line technology with a team of specialized CPAs means we can handle the tricky task of your taxes. If you already have a trusted CPA, we can work with them to simplify your tax preparation.
Ready to stop worrying about your finances and gain peace of mind? Let the experts at Ceterus get you back on track with quick and accurate insights. Timely information gives you the confidence to focus on what really matters – planning for an even brighter future! Talk to an expert at Ceterus today.