In What Manner to File Taxes for Your Small Business – Like any company, small businesses also have to pay taxes. This cannot be very clear for first-timers due to the different forms that must be completed and filed with the United States Internal Revenue Service (IRS).
So that complying with your tax obligations does not become a headache, we have prepared this guide that lists the steps to follow to declare your taxes and the forms you must fill out according to the classification of your business.
Table of Contents
Prepare your taxes in 4 steps – File Taxes for Your Small Business
Properly preparing to file your taxes can save you time and provide helpful information that will make your business more efficient. Follow these steps and “survive” tax season.
Step 1: Review your financial information
Ensure the information about your employees and contractors is up to date and accurate. Verify data such as employee names, addresses, social security numbers, marital status, etc. If you work with independent contractors, check their names, taxpayer identification numbers (TIN), and addresses.
Step 2: Organize your documents
Keep your documents and records organized to make the preparation process more efficient.
Keeping a record of all the business documentation allows you to own your financial statements up to date and control your expenses and is helpful in the event of an audit or lawsuit.
In calculation, the Internal Revenue Service requires that you present documents supporting the income, deductions, and credits you report on your tax return.
These are the primary records you should keep:
- Deposits (cash and credit sales)
- Canceled checks or other proof of payments or transfer funds
- credit card receipts
- Bank statements
- Accounts payable and receivable
- payroll records
- Previous tax returns
- Any other document that serves as a support for income, deductions or credits that appear on the tax return
Other documents you may need during tax season are:
- Contracts you have signed with clients, suppliers, employees, and contractors
- Statutes of formation of a commercial company
- Health and safety policies and any similar documents
- annual reports
Step 3: Consider extensions, deductions, and refunds
According to the IRS, business administration costs are deductible as long as they are “ordinary and necessary.” This agency defines ordinary expenses as those common and accepted within the scope of the business. Essential fees, on the other hand, are those that are appropriate and useful to the company. Some examples include the purchase of equipment or vehicles.
These are some of the expenses that you can deduct from your taxes:
- Purchase of equipment. According to the IRS, business owners can deduct from their income a limited amount of the cost of equipment or machinery they purchased in the last year.
- Business expenses. Deductible business expenses include advertising, employee benefits, phone and utility costs, office supplies, employee salaries, professional association membership dues, trade publication subscriptions, and rent.
- Travel expenditures. You container deduct ordinary and necessary expenses incurred during business trips, such as transportation, meals, and lodging. Your records must show how much you spent on each of these activities, the departure date of each trip, the number of days it lasted, the name of the city, and the reason for the journey or the benefits you expect from it for your business.
- Vehicle expenses. With the uncertainty you use your car for business-related activities, the IRS allows you to deduct your costs or claim the standard mileage rate, which is an amount of money you can deduct for each mile driven while doing business or business trips. For tax purposes, keep track of these miles, parking costs, and tolls, as these can also be deducted.
Step 4: Seek specialized advice
Gathering all the required documentation and ensuring you follow the steps correctly can be overwhelming. Do not hesitate to seek the help of a lawyer or an accountant to advise you. External consulting can be the fastest and easiest option to avoid audits and save money.
Your tax declaration depends on the structure of your company
The way your business is structured affects its financial performance. It also influences the way you file your taxes. These are the most common types of companies, their main characteristics, and their advantages and disadvantages when filing taxes.
Small Business Tax Forms
Tax forms and filing dates depend on the legal structure of your business. Trades can be classified into the following categories: sole proprietorships, partnerships, inadequate liability companies, and corporations.
These are the forms that you must submit according to the classification or legal structure of your company:
Individual Property Forms
These businesses must file Schedule C (Profit or Loss from Business), along with Form 1040 (Individual Income Tax Return), to report net profit and loss from the business. It is also necessary to present Schedule SE (Tax on Self-Employment).
Forms for Partnerships and LLCs
Businesses in this category must file Form 1065 (Partnership Income Statement), which reports partnership gains and losses to the IRS. They must also provide copies of Schedule K-1 (Partner’s Share of Profits, Credits, and Deductions), which is part of Form 1065, to members of the partnership.
Forms for Companies
If your corporate is structured as a regular corporation, you must file Form 1120 (Income Tax Return for Corporations).
Deadlines for filing taxes – File Taxes for Your Small Business
Because small businesses file their business tax returns lengthways with their tax returns, the due date is the same for both: April 15. However, the terms may vary depending on whether the business uses the fiscal year or the calendar year as the basis for reporting.
Although it requires some effort, we recommend that you do not leave the preparation of your taxes to the last moment. Suppose you work on your tax return throughout the year, dedicating the necessary time and resources. In that case, you will not only be complying with the law and avoiding the bad experience of an audit but also clearing the way for the success of your business.
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