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Preparing Business Taxes: Tips and Best Practices

Preparing Business Taxes: Tips and Best Practices

Business Taxes

When is tax day?

For most companies, tax returns are due by April 15th. If you can’t file your papers by then, you’ll need to request an extension. Requesting an extension is an easy process, and only takes a few minutes.

Once approved, you’ll have until mid-October to complete filing your taxes. However, that doesn’t mean you can wait until October to make payments. It’s still your responsibility to pay by the due date on your return to avoid any late fees.

What could other tips help with preparing business taxes? Read on to find out!

Preparing Business Taxes

Preparing Business Taxes

As you begin preparing business taxes, you’ll need to calculate your company’s profit or loss. You’ll be including all of this financial information on each tax return form.

As a sole proprietorship or single LLC member, you’ll need to fill out a schedule c form. You can check out this guide if you think you need to change your company’s entity but aren’t sure. Along with the schedule c form, you’ll also need to complete a 1040 form.

The schedule c form is a way of accounting for all of your companies income. The 1040 form helps establish all of your income. Then the IRS can compare these numbers to determine what you owe.

What About Self-Employment Taxes?

As a small business owner, you’ll also be responsible for paying self-employment taxes. Social security and Medicare are two types of self-employment taxes. You’ll be paying these taxes using the net income, or profit, that your business makes.

If you don’t have any income from your company during the first year, you can skip paying the self-employment tax. If your income during the first year is $400 or lower, you can also skip paying the self-employment tax.

Self Employment Equation

It’s helpful if you understand the calculations that go behind coming up with the self-employment tax number. First, you’ll need your entire business’s net income.
Multiply the net income by .9235, and multiply that number by 15.3% (the federal self-employment tax rate). The sum will give you a firm idea of what your tax liability will be for self-employment.

When To Hire an Accountant

As tax day comes closer, you might decide to hire an accountant to make life easier. We suggest hiring an accounting firm or using a tax preparation outsourcing company. Make sure the third party you hire has the experience, along with a solid reputation.

Find out precisely what services the third party offers, and see if they cater to small businesses. Throughout the year, you and your finance team can work together to track your company’s income and spending.

If there’s a cash flow problem, you’ll be able to notice it more quickly. As you monitor your gross and net profits, it’ll become easier to prepare for tax day.

It’s also helpful if you outsource to a third party that uses an online platform. Both you and the third party can access the online platform so that you can get real-time information on your finances.

Writing off Startup Expenses

You might be eager to write off all of your startup expenses at the very beginning. However, this could wind up causing you problems down the road. When you’re launching a new business, tracking every penny you spend throughout the year is expected.

However, the IRS has specific limitations set up for initial startup cost deductions. To get into the specifics, you’ll need to reference IRS publication 535, chapters 7 and 8. The loss dictates that you can only deduct up to $5,000 during your first year of business.

Everything beyond the $5,000 limit has to be listed over 180 months. Don’t try to play with the IRS rules to maximize your deductions.

Instead, focus on writing off the entire $5,000, if that’s possible. Then reach out to an accountant and ask them to help you spread out the rest of your expenses.

What About Car Deductions?

It can be confusing to understand the rules surrounding mileage deductions. If you’re driving your vehicle for business purposes, you could qualify for a car deduction. However, you’ll need to be able to prove that business driving was taking place.

Business driving could include traveling to see a client or even going on a business trip. However, business mileage doesn’t have the commute from your home to your work office.

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Instead, the gas money you spend to get to the office is considered a nondeductible personal cost. In addition to claiming mileage, you should also deduct other costs of the vehicle. For a company car, you can remove the oil, gas, tires, insurance, parking fees, tolls, and even the lease payments.

Software Tax Tips for Small Business

It’s clear to see that you won’t be able to have a successful tax day if you’re not keeping track of your expenses throughout the year. However, instead of relying on old record-keeping methods, we suggest investing in accounting software.

You can buy an out of box software that doesn’t require extensive upgrades or customizations.
As your business begins to grow, you can start to implement the different plugins that you need, as you need them.

There are a lot of other accounting software companies out there. When looking for the right software company to meet your needs, look at the ease of use, integration, and scalability.

If the software is challenging to use from the start, it’s not the right one for you. Instead, you should be purchasing user-friendly software that has all of the features you need to make record-keeping simple.

Finally, scalability is the option to increase the software’s function over time. Name brand accounting software understands that businesses intend on growing. The software should use a cloud-based approach so that as your needs grow, you’ll have plenty of space.

Worry-Free Tax Preparation

Worry-Free Tax Preparation

Preparing business taxes doesn’t have to be stressful. As long as you’re keeping thorough records of everything you spend and buy, filling out tax forms can be easy. If you’re accounting needs are a bit complex, reach out to a third-party accounting firm or tax preparation firm.

Now is also an excellent time to decide whether you want to continue moving forward as a sole proprietorship or transition into a single-member LLC. Decide what entity makes the most sense for your company, and begin filling out the appropriate paperwork. For more tips like these, explore the rest of our website.

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