The U.S. tax code contains over 4 million words (as of 2013).
It’s no surprise tax season makes you want to pull your hair out. If you’re nodding your head in agreement, you’re not alone. But, as confusing as taxes are, the pressure to file correctly grows as you approach the deadline.
So, what do you do? What do you need to get started? Should you itemize your deductions or opt for the standard?
What about the other ten thousand questions you have?
First, take a deep breath. Then, keep reading to learn about the top business tax tips starting with a tax preparation checklist. After that, you’ll have everything you need to get started (or hand to your accountant).
1. Gather Everything on this Tax Preparation Checklist Before You Start
As a business owner, you’re used to dealing with paperwork. But, knowing what you need to file your taxes isn’t always easy. Use the following tax preparation checklist to gather everything you need:
- Sales records
- Interest payments
- 1099-INT form or bank statements
- Returns and refunds
- Any additional income
- Beginning inventory cost
- Amount of inventory purchased
- Ending inventory cost
- Cost of goods sold
- Itemized list of expenses including
- Insurance costs
- Marketing costs
- Phone and internet expenses
- Office space rent
- Office supplies
- Travel and transportation expenses
- In-home business expenses
- Percentage of home used for business
- Mortgage or rent
- Estimated tax payments already made
- Payments made to subcontractors
- 1099-MISC or 1096 forms
- Payments made to employees
- W-2’s and W-3’s
- Payroll returns
- 940’s forms as required
- Employee benefits
- Interest expenses
- Personal retirement investments
- Personal healthcare expenses
- Bank account information
You need a lot of information to file your business taxes right and maximize your tax return. Hiring an accountant and tax lawyer will help make this process easier for you.
2. Understand Applicable Business Tax Deductions
Tax deductions help lower the amount of taxable income, which reduces the amount of taxes you owe.
Some of the most common business tax deductions include:
Vehicle expenses: If you have proof you use your vehicle for business purposes, you can deduct the expenses of operation. You can deduct gas and vehicle maintenance. Or, you can use the IRS standard rate of $0.58 per mile.
Paying your employees: Payments made to employees are business expenses. You can deduct wages, bonuses, commissions, and other fringe benefits.
Freelance and contractor payments: These payments are also considered business expenses. If you pay an individual contractor more than $600 in one year, you have to issue a 1099-MISC form to them.
Your home office: You can deduct some of the costs of homeownership if you use a part of your home to run your business. The amount you can deduct depends on what percentage of the home you use for business purposes.
Travel expenses: Business-related airfare, car rentals, and hotels are tax-deductible. This includes travel for you and your employees. But, the costs of local travel do not count.
General business expenses: If you have an office outside the home, you can deduct rent and utilities. Any supplies you buy to run your business are also deductible.
Insurance costs: Any type of insurance (besides healthcare) you need for your business is 100% deductible. This covers everything from malpractice to cyber-attack coverage.
3. Know the Types of Taxes You Have to Pay
As a business, you may have to pay up to five types of federal taxes. Some states also require you to pay taxes at a state level. Federal tax types include:
- Income taxes – a tax on your total income
- Self-Employment taxes – covers social security and Medicare
- Estimated taxes – regular tax payments throughout the year
- Employment taxes – covers taxes on your employees
- Excise taxes – used for all other taxes
Understanding what types of taxes you have to pay help estimate how much you have to pay. Whether you pay installments or once at the end of the year, you’ll know what to expect when the time comes.
4. Consider Taxes You've Already Paid
Most businesses make estimated quarterly tax payments. This is because federal taxes aren’t withheld from their income throughout the year. They’re due on:
- April 15
- July 15
- October 15
- January 15 (of the next year)
Payments are made online, by mail, or by phone. So, keep a detailed record of when and how much you pay each quarter. When filing your 2020 tax return, take note of how much you’ve already paid, so you don’t run the risk of overpaying.
5. Think About Outsourcing to a Professional
You’re an expert at what you do – running your business. It’s no surprise you’re not a tax expert on top of your mile-long to-do list. Hiring a professional to help with your business taxes is an easy way to make sure they’re done right.
Outsourcing tax preparation and filing gives you the time you need to focus on what you do best. Plus, you don’t have to worry about making mistakes, clicking the wrong box, or missing a deduction.
6. Prepare for Next Year by Staying Organized
Tax time can be time-consuming if you’re not organized and prepared. As you go into the next year, develop a system to keep your business finances organized. Throughout the year, you should:
- Be aware of upcoming payment deadlines
- Keep track of business transactions including income and expenses
- Log and store receipts as proof of your transactions
- Consider switching to 100% online invoicing and payments
- Revisit your income and expenses on a monthly basis
- Automate your bookkeeping efforts using accounting software
- Maintain an open line of communication with your finance department
- Consider outsourcing to a professional accountant (if applicable)
Get Your Business Taxes Right... The First Time
Filing your taxes isn’t an easy process. The countless forms, checkboxes, and questions, make it easy to get confused. And with penalties looming over your head, there’s a lot of pressure to avoid making mistakes.
If you’re overwhelmed by everything on the tax preparation checklist, you can speak with a tax expert, today. Get in touch with a consultant now to get the help you need.