A Guide to Tax Season for Business Owners

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A Guide to Tax Season for Business Owners 2020-Executive Chronicles

ExecutiveChronicles|A Guide to Tax Season for Business Owners|As a small business owner, it’s doubtful you enjoy tax season. However, it doesn’t need to be a painful experience. You can make preparing taxes easier by dedicating a little time throughout the year into improving your process. Follow the tips below to successfully navigate tax season.

 

Preparing for Tax Season

 

Tracking everything in one place is important. Record all business income and expenses in one place. Keep the following documents in your records:

 

  • Bank statements
  • Invoices
  • Sales slips
  • Receipts

Use an accounting system to keep your books. Excel is one possibility. There are also many cheap and free accounting software options to consider, such as ZohoBooks, QuickBooks or FreshBooks. Choose either accrual or cash as your accounting method.

 

You need to pay taxes throughout the year. The IRS expects your business to pay via withholding or estimated tax payments. The schedule you need to use will change depending upon whether your business is a corporation, LLC or another entity type. Don’t forget that you need to create a 1099 for any independent contractors you paid more than $600 during the previous year.

 

Separate Business & Personal Expenses

 

Be careful that you don’t combine personal and business expenses. Doing so might prevent you from building business credit or qualifying for business loans. You should have separate bank accounts, operate as a legal entity and use your accounting system to help keep everything separated properly.

 

It’s a good idea to use a CPA to handle your taxes for you. A qualified accountant will guide you into properly separating business and personal expenses and maximizing all possible credits and deductions.

 

Take the time to also understand the deductions your business qualifies for. Typical deductions include:

 

  • Home office
  • Vehicles
  • Business travel
  • Start-up expenses
  • Health care premiums

If you keep the proper records, you might also qualify to deduct other items like legal expenses, professional expenses, employee payments, inventory, supplies, education, phone or advertising costs.

 

Filing Your Business Taxes

 

After tracking your expenses well, the only thing you need to do when it comes to filing is figure out two things:

 

  • The way you’ll send your returns in
  • The correct forms to file with

Finding the correct forms will be determined by your legal structure. There are helpful charts published by the IRS to help in this area. Here are the basic forms you might need:

 

  • Sole proprietorship: Attach a Schedule C to your personal return
  • Sole owner of an LLC: Attach a Schedule C to your personal return
  • S-Corporations: Use Form 1120S
  • Corporation: Use Form 1120

You can still file by mail. Or, you might want to file online using reliable tax software. Some of these sync right up with your accounting software and automate the entire filing process.

 

You can look at the approved IRS list to understand all your options for filing electronically.

 

After the Filing Process

 

After you’ve recovered from the stress of submitting all the correct payments and forms, take time now to make next year easier.

 

Look at your accounting process and look for any inefficiencies in the way you’re tracking everything. Is there any way you might streamline the entire process? Is there a way to make your daily bookkeeping less painful and more efficient?

 

Did you get a big refund? If so, you’re giving an interest-free loan to the government. Make adjustments to your withholding so you get back a smaller refund next time.

 

Tax season doesn’t need to be a time of stress and worry. Follow the above tips and make it easier each year as you continue to improve your process.