The average small business pays a 19.8% tax rate on its income. Taxes are one of the major costs of a business. However, with tax planning in advance, you can make the tax filing process as smooth as possible.
As a small business owner, tax season can be one of the most stressful times of the year. With all of the paperwork, regulations, and deadlines, it can be overwhelming to try and get everything ready for tax season. However, with the right planning and preparation, it doesn’t have to be so difficult.
This comprehensive guide will provide you with the best tips and advice to help you get ready for tax season. From understanding the different tax forms and deductions to filing your returns on time, this guide will provide you with the information and resources you need to make the tax filing process easier and less stressful. In this article, we are going to learn about how to organize taxes for small business, tax preparation for business and how to find the right services for tax preparation. With the right tax preparation, small business owners can approach tax season with confidence and ease.
Steps to prepare your small business for tax season
1.Getting Your Records Ready
The first step in preparing for tax season is to get your records ready. Whether you’ve been keeping records throughout the year or you’re pulling everything together from last year, these records will be essential in helping you get your tax return prepared.
If you’re preparing your first tax return, it is a good idea to start gathering your records now. If you’ve been keeping records throughout the year, it is still a good idea to go back through them and make sure they are up to date and correct.
There are a few different types of records that you will need to gather for your tax return. Financial records, such as your balance sheet and profit and loss statement, will help you determine your business income and expenses. Property and equipment records will help you report any business-related assets that you’ve purchased or sold during the year. Other records, such as a list of your business expenses and receipts, will help you track your deductions.
You need to prepare some of the key documents beforehand if you are working with a tax preparer such as your employer identification number (Proof of identity), gross receipts from sales or services, business bank account interest, sales records, business expenses and other income.
Tax should be paid on time
2.Understand the various deduction and credit
The first step in preparing for tax season is to get your records ready. Whether you’ve been keeping records throughout the year or you’re pulling everything together from last year, these records will be essential in helping you get your tax return prepared.
You can check the list of various business tax credits that are available on the IRS website. However, you need to keep in mind that deductions and credits may change from year to year. So, check the IRS website regularly for updates.
3.Tax advantage of the latest tax laws
The latest tax laws are a boon for small businesses. In recent years, the new tax laws are one of the most significant changes that have affected small businesses. The tax reform has lowered taxes on all income levels, reduced rates, and increased deductions.
The businesses that are qualified for income deduction are partnerships, sole proprietors, their shareholders, etc.
4.Itemize business expenses
The small businesses can itemize and categorize their expenses in detail. They can take help of an accounting or bookkeeping team or with the assistance of a tax professional.
The guidelines on which business expenses can be claimed as deductions are mentioned on the IRS website. Keeping receipts and other documentation, categorizing expenses, and understanding which expenses are deductible can help a business claim the maximum benefit from their expenses on their tax return.
5.Consider an extension
Small businesses can request for an extension from the IRS using Form 7004 if they need more time to file their tax return. It gives them extra six months to file their return. However, small businesses need to keep in mind that an extension only gives more time to file their return and they have to pay the amount of taxes they owe by the original deadline to avoid accruing interest on unpaid taxes.
6.Working with a Tax Professional
It is a smart idea to consult with a tax professional.
A tax professional can provide valuable advice and insight that tax preparation software and online guides cannot. If you’re unsure about the deductions and credits you qualify for and the best method to file your taxes, a tax professional can provide you with personalized advice.
Tax professionals also come in many different forms. While you may think that only accountants can offer you the advice and services that you need, many other professionals can help, including financial planners and financial advisors.
7.Filing Your Tax Returns on Time
While it is important to get your taxes prepared as soon as possible, it is also important to file your tax returns on time.
It's always good to pay advance taxes on a quarterly basis to avoid last minute cash crunch and penalties.
Set reminders for key dates and deadlines, such as the due date for filing your tax return.
In case you are not able to file your tax return by the due date, you can request an extension. Keep in mind that an extension only gives you more time to file your return and does not extend the deadline for paying any taxes owed.
8.Keep separate business and personal finances
Keeping separate business and personal finances make it easier to prepare and file your business tax return, as you will have all of your business income and expenses in one place.
Keeping separate business and personal finances can also make it easier to keep accurate records of your business income and expenses, which is important for tax preparation and for tracking the performance of your business.
It can also improve the credibility of your business, as it demonstrates that you are organized and serious about your business.
9.Set aside enough tax money
If you do not set aside enough money for taxes, you may find yourself unable to pay the full amount of tax due when it comes time to file your tax return. This could result in additional tax liabilities and penalties, such as interest and late payment fees.
10.Staying Organized for Next Year
One important thing you can do is keep track of your expenses. You may want to use a notebook or app to keep track of your expenses throughout the year so that they are readily available when tax time comes. Another thing you can do to make next year easier is to review the deductions you claimed on your taxes. If you believe that your deductions were too low, it is important to review and update your records so that you can claim a higher deduction amount next year. You can also keep an eye on any new tax laws that might affect your business.
To conclude, with proper preparation and organization, it can be made much easier. By keeping good records, staying up to date on tax laws and deadlines, and seeking the help of a professional tax preparer, if necessary, small business owners can ensure that they are fully prepared for tax season. Additionally, taking steps to minimize tax liability, such as claiming all eligible deductions and credits, can help to reduce the overall burden of taxes on the business. However, make sure to consult with a tax specialist or accountant to ensure that you are taking the correct steps during tax season.
You can also opt for outsourcing firms like IBN Technologies as dealing with taxes can be stressful, especially for small business owners who may not have the knowledge or resources to handle it on their own. Outsourcing tax filing can provide peace of mind, knowing that a professional is handling the process and that everything is being done correctly.
Frequently asked questions
1.How to organize taxes for small businesses?
One of the biggest challenges for any small business owner is preparing their company for tax season. Thankfully, there are a few key steps you can take to make the process go smoother.
1.Organize Your Income and Expenses
2.Create a Tax Plan
3.Prepare Your Tax Forms Now
2.How can small businesses file their taxes?
Small business owners can also hire a professional tax preparer, such as an accountant or tax attorney, to handle their tax filing for them.
3.Should small business owners hire an accountant while tax preparation for business?
Accountants are trained professionals who have expertise and experience in preparing and filing business tax returns.
They are up to date on the latest tax laws and can help ensure that your business complies with these laws.
It can save you a significant amount of time, as you can focus on running your business while the accountant handles the tax preparation process.
