As a small business owner, one of the most challenging things you will face is taxes. Fortunately, we have some tips to help you navigate the process. Here are six things you should know about small business taxes.
Hire Someone to Do Your Small Business Taxes
Unless you have a lot of experience in tax preparation, you’re better off hiring someone to do your small business taxes. This is especially true if you’ve only recently started your business.
An accountant or tax preparer can help you better understand any deductions your business may be eligible for. They can also help you avoid any deductions that could potentially trigger a tax audit.
Keep Records of Everything
You probably understand the importance of keeping records of anything pertaining to your business finances. Some of the things you’ll want to make sure you have include income statements, payroll documents, depreciation schedules, bank and credit card statements, and receipts for both small and large purchases.
If your business sells products, you should keep a good record of them. Most states will require you to pay sales tax.
Make Sure You Complete the Right Forms
This is one of the most important tax tips for small business owners. Some of the forms you may need to file include the following:
Schedule C — Profit and loss statement (for sole proprietors).
Form 1120 or 1120S — Income, losses, gains, deductions, and credits (for corporations).
Schedule K-1 and Form 1065 — Business expenses, income, and losses (for partnerships).
W-2 — Reports earnings provided to employees, as well as taxes withholdings and deductions.
1099 MISC — Reports earnings provided to non-employees who have worked for your business, such as contractors or freelancers.
Additionally, you may also need to file certain forms for depreciation, home-based businesses, self-employment taxes, and royalties or dividends. An accountant or tax preparer can help you determine which forms you’ll need to complete and help you better understand the federal, state, and local tax requirements for small businesses.
Make Sure Your Business Is Properly Classified
The way you classify your business has a huge impact on your taxes. You may be eligible for certain deductions that you would otherwise miss out on if your business is improperly classified.
Some of the options include Sole Proprietorship, Single Member LLC, Limited Liability Partnership, Limited Liability Company, S Corporation, or C Corporation. You will need to complete the appropriate applications to ensure your business classifies as one of these prior to filing for taxes.
If you haven’t been able to determine what category your small business falls under, be sure to talk to an accountant and/or an attorney to figure it out.
Know the Tax Filing Deadlines
It’s important to know the deadlines for filing your small business taxes. This varies according to what type of business you have, and the deadline changes every year. Corporations are generally required to file for taxes in April, while sole proprietors typically have to file in May.
Stay on Top of Quarterly Taxes
Small businesses are generally required to pay quarterly taxes. If you expect to have to pay more than $1,000 or more, this rule typically applies. It’s important to stay on top of your quarterly tax payments. Not only is it easier to pay your taxes gradually rather than in one lump sum, but you will also avoid any late fees or penalties that you may otherwise face for not paying quarterlies.
These are just six things you should know about small business taxes. Talking with a tax preparer or accountant can help you best determine what forms to file and what deductions you can take advantage of while also reducing the risk of a tax audit.
