Business tax returns can seem intimidating for any entrepreneur, especially those with little to no previous experience filing business tax returns. Tax season can bring a lot of additional stress to an already stressful situation for many entrepreneurs. The best thing that you can do to reduce stress during the tax season is to be prepared. Being prepared to file your business tax returns will make the process easier on you and your business.
Preparing to File Business Tax Returns
Before tax season begins, it is a very good idea to start organizing and preparing to file your business tax returns. Staying organized throughout the year will eliminate a lot of stress when it comes down to the wire of tax time. Keep all business records in an easy to manage system that works best for you and your business. For some this may mean using a filing cabinet while others may prefer to make electronic copies of all documents and save in folders on a computer or storage device. Be sure that if you do choose the electronic route that you have a backup for these important documents as you will need them for your business tax returns. Keeping good records is key when it comes to operating a successful business and filing your business tax returns in a timely and stress free manner.
Using a spreadsheet can help you organize the data for your company’s business tax returns throughout the year as well. This is an excellent way to keep track of transactions, income, and deductions. Many entrepreneurs choose to use a budgeting program to help them manage their business; you can also create your own spreadsheet based upon your company’s specific needs.
Another helpful tip that can help you stay ahead of the game during tax time is marking deadlines on your calendar. If you aren’t actively working on your business tax returns regularly then these deadlines can really sneak up on you. By marking them down you are eliminating the surprise and any last minute rush to gather information for your business tax returns. This is also helpful to keep track of any quarterly tax payments that you may have due.
Another time saver for getting ready to file your business tax returns is getting the needed forms ahead of time. Know what forms you will need to have on hand when tax time rolls around so you aren’t scrambling to locate the forms close to your deadline. Review the forms to see what kind of information is going to be needed. If you have any questions about the forms for your business tax returns, seek out the answers sooner than later. Write a note to yourself with the answer to your question once you find it so you have the answer handy during tax season.
Additional Tips for Filing Business Tax Returns
Business tax returns are more complicated than individual tax returns and many people prefer to reach out for assistance filing due to the complex nature. An accountant can help walk you through the process of filing your business tax returns but can be costly. If you choose to file your business tax returns on your own, be sure you allow adequate time for learning what is required and how to present it.
For example, you will need to decide if you want to prepare your business tax returns on a cash basis or accrual basis. If you choose a cash basis, then income is realized at the moment it is collected and expenses are recognized at the moment that they are paid. While under the accrual basis, income is recognized when it is earned and expenses are recognized when they are incurred. If you are trying to get a business loan then a lender will typically prefer to see accrual based financial statements. However, you are still able to prepare your business tax returns on a cash basis even if your other financial documents show an accrual system. Typically, young businesses tend to favor the accrual system as they are more likely to have less uncollected income and more unpaid expenses at the end of the year. A more mature and profitable business is more likely to choose a cash basis system for filing business tax returns.
It is also important to learn about which deductions your company will be able to include on your business tax returns. If you have a home based business you may consider deducting a portion of your home as a business deduction. In order to do so, this portion of your home must be used exclusively for business purposes. The percentage of area used for business purposes in comparison to the square footage of the home can be applied to home office expenses. This cannot be done, however, if your business was a loss, though the deduction can be carried forward.
Expenses and Business Tax Returns
If your business has employees or contractors your business tax returns will be slightly more complicated. Employees will have a W-2 form to show their income and taxes. Contractors who earn more than $600 will get a 1099-MISC form. It is important that you keep track of all of the earnings for employees and contractors.
If your business requires the use of a vehicle, be sure that you keep a detailed travel log for your business tax returns. You will want to document dates, mileage, business purpose, and who you were meeting with. Also track any expenses associated with your business vehicle.
If you are the sole proprietor you will want to be on the lookout for self-employment tax when working on your business tax returns. You will pay quarterly estimates for self-employment tax but it can be easily overlooked. It’s also important to note that when the April 15 deadline rolls around, your first quarter installment of that year’s taxes is also due, be sure that you have funds available to make this payment in addition to any taxes you may owe from your business tax returns. It’s important to stay on top of the quarterly taxes due and their deadlines. If you miss deadlines you could incur unnecessary expenses.
Whenever you buy any new equipment or software for your business you will want to be sure that you save receipts for your business tax returns. You should also keep records that reflect the cost of the item, as well as the date you began using it. You will also want to calculate and claim depreciation on all assets for your business tax returns.
In the event that your company is able to donate money, supplies or goods to charity you are able to claim this when you file your business tax returns. Any bonuses or classes can also be documented on your taxes.
Successfully Filing Your Business Tax Returns
The best steps you can take to ensure that you are able to successfully file your business tax returns stress free and on time are to make sure you are aware of all tax deadlines. Being prepared by staying organized and keeping great records also eliminates a lot of stress. Being aware of all deductions that you are able to claim can help you get the most out of filing your business tax returns.
It’s also a good idea to do a dry run at the end of the year by filling out all the required forms with your financial information to see which method of accounting will be in the best interest of your business. You can try both the cash basis and accrual basis to see which option will be most beneficial to you for the year that you are filing your business tax returns. Be sure that you research any questions you may have ahead of time so you aren’t scrambling for answers near your deadline. Education, organization, and preparedness are the best tools you can have when it comes to filing your business tax returns.