Tax Preparation for Small Business
Running a business is a lot of work without adding the responsibility of preparing and filing your taxes as well. Preparing taxes as a small business owner can feel overwhelming, but it doesn’t have to be! Use the resources below as a checklist to help you prepare for the upcoming tax season.
Stay On Top Of Your Bookkeeping
Keeping thorough and accurate records all year long will ensure that your tax preparation is easier and your tax filing is correct.
QuickBooks Online makes it easy to track your expenses, manage cash flow, pay bills, create estimates and invoices, keep inventory, and manage your payroll (among many other things). Did you know we have certified QuickBooks Pro Advisors on staff to help you with your bookkeeping and troubleshooting needs? Contact us today to connect with one of our QuickBooks Pro Advisors.
Whether you decide to use QuickBooks Online or any other bookkeeping software, the key is to ensure you are tracking throughout the year so when it comes to tax time, pulling your reports is a breeze.
Gather Your Documents
Once tax season has finally arrived, it’s time to gather documents and prepare them for your business return.
Make sure you have:
- Your Taxpayer Identification Number
- Personal Information
- Previous Year’s Tax Return
- Financial Business Reports
- Tax Forms
- Asset Information
- Loan Information
- Income Records
- Expense Records
- Payroll Data
- Inventory Total
- Stocks & Bonds Information
Deductions save your business money, so it is important to take advantage of the ones you qualify for. Depending upon which business tax return you have to prepare, your deduction options will be different. While it varies for each business, here are a few to research or discuss with your tax preparer:
- Cost of Goods Sold
- Office Supplies & Furniture
- Employee Wages
- Business-related Shipping/Postage
- Office/ Retail Rental Space
- Business Insurance
- Business Meals
- Contract Labor
- Estimated Tax Payments
To learn more about each of these deductions visit our article Tax Deductions for Small Businesses.
Create a Tax Calendar
Ensuring you are meeting the tax filing dates is essential. Dates will fluctuate depending upon what you file as, so it’s important to stay on top of when you should be doing what.
For example partnerships, S Corps, and multi-member LLCs will file on March 15, while single-member LLCs, C Corps, and sole proprietors will file on April 15. This is not the only due date that varies so a great way to stay prepared is to create a digital calendar containing any important tax deadlines, tax appointments, or quarterly payment dates.
Creating a digital tax preparation calendar not only helps you with preparation, but it prevents losing track of time and accruing penalties due to not submitting taxes on time – everyone wants to avoid late fines and interest.
File An Extension If You Need To
If 2020 has shown us anything, it’s that setbacks can arise unexpectedly. If you experience setbacks in your business and find yourself scrambling to prepare on time, you may file for a six-month extension. Keep in mind, such an extension must be filed prior to the March/April 15 due date (depending upon the return you’re filing).
When filing your extension, make a note of the reason for your extension request. Use the guide below to determine which form you need to fill out.
- S Corps, corporations, multi-member LLCs, and partnerships: 7004 Extension Form
- Sole proprietor, single-member LLC: 4868 Extension Form
Determine The Forms You Need
Now that you’ve organized your books and records and you’ve gathered your documentation it’s time to determine which business tax return you need to prepare. You can use this as a guide when it comes time to file:
- S Corps file an 1120-S
- Corporations file an 1120
- Partnerships & Multi-Member LLCs file 1065 & Schedule K-1
- Sole Proprietors & Single-Member LLCs file Schedule C
Meet With an Accountant
One of the biggest mistakes that small businesses make is trying to handle their tax preparation on their own. Not only does this add to their many responsibilities, we often find that business owners will pay more taxes when filing on their own, as they often don’t understand tax laws. Relying on an accountant to plan and prepare your taxes will help avoid any legal issues, outline financial strategies, and generate reports that help you make good business decisions for the future.
Why Small Businesses Need An Accountant Year-Round
You will often hear small business owners discuss their need to meet with an accountant around tax time, however, business owners would benefit from working with an accountant year-round to analyze financial data, reporting, and help guide key decisions within the company to increase profit.