The IRS has said it plans to increase the number of small business audits by 50%. Taxes are already stressful for small business owners.
Contents1. Establish a good tax base2. What forms does your business need to complete?3. Tax filing deadlines4. Gather tax documents5. Calculate the profit of your business6. Working with a CPA7. Always Keep RecordsTax Preparation Made EasyYou need to make sure you know everything about preparing business tax returns before you file your tax returns. This is one of the ways to protect yourself and your business.
However, there is good news. Preparing your taxes is about to get a whole lot easier. Keep reading this article for the business tax preparation checklist that will help you with your taxes.
If you have a good foundation in place, you will avoid tax issues and penalties with the IRS. An accounting system keeps track of your income and expenses.
The best way to do this is to use software such as QuickBooks and Wave. You'll want to work with a CPA to ensure your accounts are properly categorized.
Another area where companies have tax problems is how they classify their employees. Remote work has increased during the pandemic.
Employers want to classify some of these workers as independent contractors. The tax burden shifts from employers to workers, as independent contractors pay their own taxes.
Some business owners see this as an opportunity to stop paying payroll taxes. If you misclassify workers, you risk fines and tax penalties.
Take a look at this test from the IRS. You can use it as a guideline to correctly classify your workers.
Do you know what forms your business should use to file its taxes? It depends on the legal form of the company.
Sole proprietors and single member LLCs use Schedule C to report business taxes. You file your income taxes using Form 1040 and attach Schedule C.
Form 1065 is used for LLCs and multi-member partnerships. This shows the profit and loss for the business. Include schedule of Form K-1 to outline income and deductions.
Members and partners are taxed on the profit of the business on their income taxes. They must pay taxes on the profits, even if they did not receive a distribution.
Form 1120 is for C corporations. The business is treated as a separate entity and its shareholders do not need to report profits on their income taxes.
Finally, there is Form 1120-S, which is for the S-Corps. Like LLCs and multi-member partnerships, you report loss of profit to the business.
You pay taxes on your share of the income. The thing to note about S-corps is that single member LLCs can choose to be taxed this way.
One of the reasons small businesses are penalized by the IRS is that they file and/or pay taxes after the deadline.
It's your job to know when the taxes are due, and it's not always April 15.
S-Corps, Multi-Member LLCs, and Partnerships file taxes on March 15.
Sole proprietorships, corporations and LLCs taxed as corporations pay their taxes on April 15. This is the case if the fiscal year ends on December 31.
What about companies with a fiscal year end other than December 31? You have until the 15th of the fourth month following exercise.
Many companies have a June 30 year end. In this case, the tax deadline is October 15.
You know what forms you need to complete to declare your taxes. What else is there? Well, you need to have your income statements and your income statements.
Get your tax ID number or have your social security number handy as well. Next are your credit card statements, receipts, bank statements, and estimated taxes.
You will need your payroll records if this applies to your business. If you've been in business for more than a year, last year's tax return is also helpful.
Your business profit is total revenue minus deductions. It's fairly easy to determine your income, just be sure to reconcile it with your bank statements to ensure accuracy.
If you have a cash business such as a CBD or cannabis business, you must include all cash transactions. You can't afford to make mistakes because these transactions are reviewed by the IRS.
Most of your tax liability comes down to the deductions you make. You cannot deduct an expense for the sole purpose of getting a deduction.
There has to be a good business case for this. Otherwise, it won't fly with the IRS.
Look for things like car mileage deductions, health insurance credits, home office deductions, and travel deductions. These are often missed by small business owners because they were unaware of them.
It's time to call a tax professional. CPAs spot missed opportunities and help you determine whether to apply for an extension or not. They may be able to help you take advantage of tax credits.
There are business tax preparation service providers such as www.taxfyle.com/small-business-tax-filing and TaxHub. You can also work with a CPA in your area.
The best way to protect yourself in case the IRS questions your tax returns. It's by keeping good records.
Keep your tax returns, bills, payroll records and receipts for about seven years.
Did you make any estimated tax payments during the year? Make sure you have records such as canceled checks and confirmation emails. There are times when these payments are not credited to your account and you must prove that you have actually paid your taxes.
Preparing business tax returns doesn't have to be complicated. With this business tax checklist, you know what you need to file your business taxes.
Now that you understand business taxation, you need to know how to grow your business. Be sure to visit the Business section of this site for more great tips!
