Business tax preparation can be a cumbersome and time-consuming chore, but if you don’t do it correctly, you could fall out of compliance with the tax code and incur costly penalties.
Steps to Prepare Your Small Business to File Taxes
1. Identify the Appropriate Tax Forms
Which tax return you need to file depends on your registered business entity, or tax structure, as follows:
- Sole proprietorship or single-member LLC – Form 1040, personal income tax return, and Schedule C, Profit or Loss from Business
- Partnership or multi-member LLC – Form 1065, U.S. Return of Partnership Income, and Schedule K-1
- Corporation or LLC taxed as a corporation – Form 1120, U.S. Corporation Income Tax Return
- S Corporation – Form 1120-S, U.S. Tax Return for an S Corporation
If your business has employees, you’ll also need to ensure your HR department provides every employee with the tax forms they need to file their taxes correctly. You may need to send out different tax forms depending on whether an employee is working for you full-time, part-time, or on a contractual basis.
2. Learn Your Tax Filing Deadline
Different types of businesses have different deadlines by which they need to file their taxes.
Partnerships, multi-member LLCs, and S Corporations must file taxes by March 15.
Sole-proprietorships, single-member LLCs, multi-member LLCs taxed as corporations, and corporations whose tax year ends on December 31 must file taxes by April 15.
If your company’s tax filing deadline falls on a weekend or holiday in any given year, your tax filing deadline is pushed until the next business day.
3. Collect Your Records
Gather all relevant financial records, including financial statements and supporting documents. Collectively, these include:
- Taxpayer ID number – EIN/FEIN (Federal Employer Identification Number) or SSN (Social Security number)
- Income statement and balance sheet
- Payroll records
- Bank and credit card statements
- Prior year’s business tax return
- Estimated tax payments
4. Find Tax Credits and Deductions
Deductions allow you to reduce your taxable income before calculating your taxes owed. In contrast, credits allow you to reduce your tax obligations or receive a refund on taxes paid. Some credits grant you a refund even when you owe no taxes.
Examples of some standard tax deductions include:
- Business mileage and business use of car deductions
- Travel deductions
- Home office deduction
- Charitable contribution deduction
- Bad debt
Another useful deduction is making significant end-of-year investments, such as capital improvements and upgrades. Purchasing new equipment or other qualifying business property, for instance, would allow you to claim a Section 179 deduction. This would qualify you to deduct part or all of the costs incurred for those purchases you put into service in the tax year.
Just be sure that any sizeable year-end capital improvements you make improve your business’s profitability. Tax benefits alone won’t make a poor investment worthwhile.
Common tax credits include:
- Disabled access credit
- Small employer health insurance tax credit
- Work opportunity credit
5. Deduct Estimated Tax Payments
If you have already made any estimated tax payments over the tax year, deduct those amounts from what you owe.
Self-employed people, for one, are required to cover their tax liabilities by making estimated payments throughout the year since there are no employers withholding taxes from their wages. Business owners, meanwhile, must make estimated tax payments quarterly.
8. Determine Whether You Need an Extension
If you believe that, for any reason, you may be late in filing your taxes, you can request a filing extension from the IRS. You must, however, request the extension before your tax filing deadline.
7. Look Into Alternatives to Payment
If, for some reason, you’re unable to pay your tax liability, or can’t pay it all at once in a single lump sum, research what alternatives you may have available to you. Some alternatives the IRS offers include:
- Monthly payment plan – With an IRS installment agreement
- Tax-debt settlement – Offering to compromise about your obligation
- Postpone payment – Tentatively delaying paying your taxes until your company’s financial state improves
Even if you get approved for one of these options, you still must file your tax return on time unless, of course, you got a tax-filing extension. If you fail to file your tax return on time, you may become ineligible for any of these tax payment alternatives.
8. Speak With Your Accountant
Once you’ve collected all the information you need to prepare your business taxes, you can hand it over to your accountant to take it from there. A small business tax advisor will verify the accuracy and completeness of all that information and then use it to prepare your business tax return and file it on your behalf.
Tax laws are constantly changing, and, in any year, there may be new taxes you must pay and new credits and deductions for which you may be eligible, as well as former ones that are no longer valid. A good CPA for small businesses also stays abreast of all new and updated regulations and other changes to the U.S. tax code that may affect how your business must file its taxes.
Tips for Effective Small Business Tax Preparation
There are several ways you can lower your tax obligation for any given year.
You may be able to push some expenses from December 31 of the current tax year to January 1 of the next one. This will effectively lower your taxable income on your current tax return.
Reassess Your Retirement Plan
The retirement plan you offer employees doesn’t just benefit you with a hiring advantage and employee loyalty. It can also benefit you when you file your taxes. Consider offering retirement programs beyond the typical IRA or 401(k) IRA if you own a small business. Offering a Simplified Employee Pension Plan (SEP), for example, will allow you, as well as your employees, to set aside up to 25 percent of your income up to a maximum of $54,000 tax-free.
Identify Obsolete Inventory and Uncollectable Debt
Since inventory must be sold in order to count as income, if you have old inventory you can no longer sell, you can deduct their original cost as an expense. If you have debt you’re unable to collect, you can also deduct that as an expense.
How to Find a Tax Accountant in Charlotte
Scott Boyar is a trusted CPA in Charlotte who can help you take care of all the tasks necessary to prepare and file your business taxes. As a bookkeeper as well as a small business CPA, he can even help you keep your books throughout the year, so you don’t even need to identify any pertinent information or collect any relevant records for him to prepare your taxes. To speak with an experienced Charlotte small business CPA, call 704-527-2725 or contact Scott Boyar online.