Tax time is upon us. No matter what your filing status, navigating the red tape of federal tax requirements is a headache. If you have a small business, the process can seem overwhelming.
Knowing when everything is due, and what forms you have to have, and whether you’re eligible for certain tax write-offs can be overwhelming. There’s a menacing reputation that the IRS only makes things worse. After all, those guys took down Al Capone!
If you’re facing down a terrifying stack of confusing forms, don’t panic! Calculating what you owe during tax time is possible. Below are eleven steps that will make navigating tax time easier for your small business.
1. Make a Note of Important Filing Dates
Although April 15 is widely known as Tax Day, there are actually a few other important dates you’ll want to make note of during tax time. When you start your fiscal year, set a reminder a few weeks in advance of these dates. That way you make sure you get everything done in plenty of time.
A few years ago, the federal government moved Tax Day to April 18, rather than April 15. This is now when Forms 1040 (US Individual Income Tax Return), 1120 (US Corporation Income Tax Return), and FinCEN 114 (Report of Foreign Bank and Financial Accounts) are due. This is the biggest fiscal date you’ll want to make note of.
On January 31, 1099s (which we’ll discuss in more detail later) must be filed. If you have employees who qualify for this form of tax reporting, you’ll likely want to start gathering information for that immediately after the new year. Forms 1065 (US Return of Partnership Income) and 11205 (US Income Tax Return for an S Corporation) are due on March 15, so be sure to note that date if any of those qualifications apply to your small business.
2. Watch Out for Common Tax Time Scams
Tax time is the busy season for scammers and con artists. In fact, you may already have received a call from someone claiming to be the IRS. Keep an eye out for these three common scam types and you’ll make it through tax time unscathed.
The IRS will never call you demanding immediate payment or threatening to take immediate legal action against you, so if you get a call like this, ignore it. Likewise, phishers like to send emails pretending to be the IRS, so remember the IRS will never initiate contact about taxes via email. Finally, if you use a tax preparer, make sure they have an IRS Preparer Tax Identification Number; otherwise, they might be a con artist.
3. Don’t Forget the 1099s
For 1099 is used by the IRS to make sure everyone reports their income accurately. They apply to earnings outside of a regular salary or wages. If you pay someone more than $600 during a fiscal year, you must file a 1099 form for them.
There are a few different kinds of 1099 forms, so make sure you are filing the right type. For a small business, you will most commonly be using Form 1099-MISC. You can read more about filing 1099s and the different types of form on ScaleFactor’s blog.
4. Figure in Your Sales Tax
The first step in figuring out your sales tax is determining where you have nexus, or what state you have a significant presence in. If you’re an online business, this may be harder. Once you have that figured out, register for a sales tax permit in that state.
Once you have your sales tax permit, it just becomes a matter of collecting sales tax from every customer. If you use a point of sale system, it will likely have a sales tax feature built in and automatically enabled. Different states have different rates of sales tax, so be sure you check on the sales tax rate in your state before you begin selling.
When tax time comes around, the most important thing is to file your sales tax on time. Some states will even offer discounts for filing early. There are also benefits to filing electronically, which we’ll explore more a little later.
5. Decide Whether to Use Tax Software or an Accountant
You may feel like if you have a business, you need to hire an accountant. But depending on the situation, you may be able to get by just fine with tax software. Each has their own pros and cons.
If your budget is tight, it is certainly true that using tax software will save you money. It can also be a quicker, simpler way to get your taxes filed. If your taxes are fairly simple (if you aren’t handling 1099s or multiple employees, for example), this may be a good choice for you.
However, it is impossible to deny the expertise of accountants. With an accountant, you will get better software and a more personal interaction. Accountants can also save you time year-round with more complicated tax situations or questions.
6. Use the Right Bookkeeping Software for You
In a similar vein, you can greatly simplify your taxes by using the right bookkeeping software. Good programs will collect information you need during tax time, such as sales tax and money paid to contract workers. Then when you are preparing your taxes, all the information is in one accessible place.
Of course, bookkeeping programs vary widely. Some of the most well-respected programs include Quickbooks, Wave, and GoDaddy. You will want to read up on these programs to determine which will work best for your company.
7. File Electronically
One of the best things about doing business in the modern era is you don’t have to deal with piles upon piles of paperwork. Finances and tax information is handled digitally, and that means electronic tax filing as well.
Filing your taxes electronically can have a few benefits. For one, it’s harder to make mistakes on your forms since you’ll have a computer double checking you. In addition, it’s easier and faster and sidesteps the hassle of having to mail in a physical return.
8. Sign and Date Your Return
After all the hassle of calculating your taxes, it can be easy to forget that last little thing on the tax form – your signature. But it is a crucial part of your tax return, and there are a few rules of thumb you’ll want to remember to double check before you file.
If you’re filing a joint return, you need to make sure both parties sign the form. If you’re filing electronically, you’ll need to use a PIN number to confirm your signature. Make sure these things get done and your tax time will be much smoother.
9. Keep a Copy of Your Return
While this may seem like an obvious tip, it is absolutely crucial. Having a copy of your tax return on hand will be incredibly important in the event that you are ever audited. After tax time is over, make sure you don’t skip this step.
Although it is true that most things financial are going digital, you do want to make sure to have a physical copy of your return. In the event of a computer crash, you don’t want to be left without those documents. The general rule of thumb is you want to keep returns for up to the previous seven years.
10. Request an Extension
If you’ve run into trouble with filing your taxes and you absolutely cannot make deadlines, don’t panic. You can file an extension to be allowed to file your taxes later. This will help ensure you avoid any late fees or other penalties for filing late.
It should be noted that extensions only apply to tax form filing. Any tax payments must still be made by April 18 of that year. Visit the IRS website to get started filing an extension by April 17 at the latest.
11. Use an App That Does It All
Hands down the best way to make your tax time simpler is to keep your finances in good order all year round. There are a number of tools available to help you manage your finances and make tax time a breeze. ScaleFactor provides some of the best tools for this.
ScaleFactor tools simplify accounting and finances. We provide automated bookkeeping, payment and invoice tracking, a compliance calendar, and smart forecasting. Our system is intuitive and our customer service is there to help should you need it.
Take a Deep Breath – You’ve Got This
Small business taxes can seem perplexing, and it doesn’t help to have the IRS looming over your shoulder. Just remember to stay organized, read carefully, and decide at the outset what the right solutions for your business are. If you follow the eleven tips above, your tax season will be a snap.
Take advantage of ScaleFactor’s amazing tools today. Meet Marge, your digital finance assistant who is available to help run your business 24/7, and discover how painless company finances can be. You can request a demo or take a product tour on ScaleFactor’s website.