Tax preparation for businesses starts with your daily operations. if you’re organized and keep good records, you’ll find tax season far less stressful. Alternatively, if you’re apt to lose documents or keep messy records, getting your taxes together will probably be a very unpleasant task. Here are a few strategies to get you started.
Obtain an EIN
Business entities typically file taxes under an employer identification number, or EIN. This is similar to a social security number, but it’s connected to a company instead of a person. Sole proprietors can technically file business taxes using their social security numbers, but EINs help you separate your personal obligations from those of your business.
It’s easy to obtain an EIN. Simply visit the IRS website and fill out the application. You must complete the form in one sitting—the IRS doesn’t let you save your applicatione—but you’ll receive your EIN immediately. The IRS will then mail you confirmation of your EIN for your records.
When you fill out your taxes, put your EIN in any form field that asks for your identification number. Memorizing your EIN will make business paperwork go much faster.
Assemble all financial records
Start with all the documents you need, from profit-and-loss sheets and payroll records to receipts from expenditures and previous years’ tax documents. If you have all of your financial records on hand, you won’t have to spend hours digging through filing cabinets or shoe boxes.
Moving forward, keep all tax-related documents in one place, preferably a fireproof safe. Additionally, store digital copies in two separate locations. You might want to use a file-sharing service, such as Box or Dropbox, so you can access your documents in the cloud. Just make sure you choose a secure service that uses firewalls, encryption, and other security measures to protect sensitive data.
Meet with an accountant
It’s difficult to file your business taxes on your own. An accountant, or CPA, knows business tax law and can complete your forms faster and more accurately. Just make sure you choose a CPA with experience in your particular industry. He or she can find deductions and better understand your needs if he or she has familiarity with your business.
When choosing an accountant, consider asking fellow entrepreneurs for a referral. If you work in an office in Charlotte, North Carolina, for instance, talk with business owners in the Charlotte area about the CPAs they’ve used in the past. Find out if they were satisfied with the accountant’s work and if they’d recommend him or her to a friend.
If you can’t get a referral, research CPAs online. You can find customer reviews in just about any industry, and if you pay close attention to the most balanced reviews, you’ll have a good idea of what to expect.
Locate the proper forms
Whether you’re filing on your own or using a CPA, you need the right forms to file your business taxes. Extremely small businesses might only have to file a form or two, while others might need to fill out several forms. For instance, manufacturers and retailers sometimes have to pay excise taxes, which requires a separate document.
Read over each form carefully and make sure you know what every form field means. If you have questions, contact your tax attorney or CPA to get an explanation. Filing taxes incorrectly can result in fees as well as considerable frustration.
Pay taxes on time
Don’t wait until the last minute to file your business taxes. You might feel tempted to procrastinate, but you’ll ultimately have to rush through the process. Worse, you might not finish your taxes by the IRS’s deadline, in which case you’ll pay penalties and put yourself at a greater risk for an audit.
Remember that if you need to file for a tax extension, you still have to pay your estimated taxes on time. The extension applies only to the tax forms themselves, and not your financial obligation to the IRS.
Tax preparation for business
Preparing ahead for tax season can make the process run more smoothly. Regardless of the type of business you own, organization makes a huge difference in the time you spend on taxes, as well as your tax forms’ accuracy.
Know your deadlines
Business tax deadlines vary depending on how you file your business taxes and what type of business you run. Additionally, the IRS can change tax deadlines at any time, so check the IRS website to confirm all deadlines before you start filing your taxes.
If the general due date falls on a holiday or weekend, the IRS extends it to the next business day. For instance, in 2017, the usual April 15 deadline for individual tax returns was extended to April 18 because the 15th fell on a Saturday. Corporations and some other business entities, however, must usually file by March 15.
Consider filing quarterly
If you want to stretch out your tax obligations and keep the mountain of paperwork from growing all year, consider filing your taxes quarterly. Instead of submitting your forms and paying your full tax obligation once per year, you’ll file and pay four times a year. The deadlines for quarterly payments are generally April 15, June 15, October 15, and January 15. Again, however, the IRS can extend the deadline for holidays and weekends.
When you file quarterly, you can use the online system or file your paperwork in hard-copy form. Both individuals and businesses can file quarterly, and most sole proprietorship and general partnerships choose this method. It’s easier for everyone involved, and it helps you avoid a major debt once per year.
Organize your records as you go
Incorporate your business taxes into your daily operations. When you process or receive a document that could affect your taxes, put it in a space designated for that purpose. You might have to make copies if the you think the document might apply to other facets of business operations, but you’ll want at least one in your tax file.
Consider creating both digital and hard-copy files for your taxes each year. Though some professionals prefer to get the hard-copy paperwork, you might be able to email your documents to your CPA or tax attorney. Additionally, if disaster strikes, you know you have a backup.
Know your entity status
Your business entity status will affect how you file your business taxes. A corporation, for instance, must follow much stricter rules for taxes than a limited liability company, or LLC. The same is true for sole proprietorship and general partnerships.
If you changed your entity status this year, you’ll need to get familiar with the new rules. A CPA or tax attorney can prove invaluable during this process, especially if you don’t have much experience with taxes. Additionally, should you change your entity status, consider allowing more time for your next tax filing. After you file the first time, subsequent deadlines will prove easier to meet because you’ll know the basic process.
Familiarize yourself with deduction options
Deductions are an essential facet of filing taxes for your business. You can save considerable tax dollars if you deduct business expenses.
The allowable deductions can change from year to year and can vary from one business entity to another, but they’re fairly straightforward. For instance, you might be able to deduct employee salaries if you’re an LLC, sole proprietorship, or general partnership. Other deductions include business vehicle maintenance and miles, office supplies, physical assets, utilities, asset repairs, advertising costs, legal fees, CPA fees, interest on business loans and other debts, mortgage interest, and travel costs. If you pay a commission on sold items, you can usually deduct the commission amount, and retailers can also deduct state and local sales tax.
Getting your business taxes right will save you time, money, and stress. Follow the above tips to prepare for tax season and ensure that your taxes are done accurately and filed on time. You can always visit the IRS website if you need more information on forms, liabilities, deductions, or other issues.
Feeling overwhelmed? Get more out of your to-do list by working smarter, rather than harder.