Did you know that there are over 27.9 small businesses in the United States? Whether you’re just starting your business or you’ve been at it for years, you’re going to want to be prepared for when tax season inevitably hits.
Knowing when everything is due, what forms are required, and whether you’re eligible for certain tax write-offs can be overwhelming. No matter what your filing status, navigating the red tape of federal tax requirements is a headache. To help you confidently navigate filing business taxes, we’re providing valuable tips and tactics to ensure you get through tax season unscathed.
In this guide, we’ve mapped out:
- A few tips for making filing business taxes easier
- Tax deductions you might be missing out on
- Benefits of outsourcing to a tax accountant
11 Ways You Can Make Tax Time Easier on Your Small Business
If you’re facing down a terrifying stack of confusing forms, don’t panic! 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 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
1099s are 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 its 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 more personal interaction. Accountants can also save you time year-round with more complicated tax situations or questions (more on this soon).
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 the 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.
8 Small Business Tax Deductions You Didn’t Know About
As you prepare to file your taxes, do some research to see if there are any opportunities for deductions you can leverage. The IRS lists several amazing small business tax deductions (some that you may know and others that you may have missed). Here are some of the top opportunities for deductions:
1. Your Home Office
It may seem obvious that you can write off your home office for your small business tax deductions, but many entrepreneurs misunderstand how this rule works.
Let’s break it down. In order to claim your home office on your taxes, the IRS mandates that this space is devoted to your business and nothing else. It needs to also be your principal place of business. Typically, this means that your home office will just be part of a room, rather than the whole room.
You’ll want to measure your work area and divide it by the total square footage of your home. You can claim any home-related business expenses related to that space—your rent, mortgage, insurance, and electricity.
Finally, don’t forget that you can also write off associated fees with maintaining your office. This means office supplies, such as paper, ink, staples, pens, etc. It also means relevant furniture, such as your desk, chair, bookshelf, or filing cabinet.
In general, if it’s exclusively used for your business, you’re able to claim it in your small business tax deductions.
Another one of those misunderstood small business tax deductions, gas mileage can quickly add up for those who drive for their companies.
In order to receive your money back, you’ll need to keep detailed documentation. This means you should keep a notebook in your car to record the mileage, tolls, parking costs, purpose of trip, and dates.
At the end of the year, you’ll have two choices:
- Measure your business usage to your personal usage and deduct that portion of your auto-related expenses.
- Total the mileage, add in the tolls and parking and calculate your deduction. Multiply that number to 53.5 cents (as of 2017).
You can also include leasing payments if you are leasing the car.
If your business is not in your home, the mileage begins at your first business-related location and ends at your last. That means you can’t just include the ride to and from home.
If your office is at home, you can deduct any business-related drives from pulling out of your driveway until your return home.
3. Insurance Premiums
If you’re self-employed and cover the costs of your own health insurance premium, then your costs are completely deductible- so long as they don’t exceed your total business’ net profit.
You can’t write off insurance premiums if you received health coverage through a secondary employer.
But, if your spouse worked for you last year, you can get the full medical premium deductions on your tax returns. Your spouse and children will also be 100% deductible.
4. Employee Benefits Programs and Plans
As a small business owner, you can deduct the cost of employee benefit programs, such as dependent care assistant, wellness assistance programs, and education assistance. Furthermore, you can also use employees’ retirement plan accounts, such as a sponsored 401(k) for your small business tax deductions.
Are you self-employed without any additional employees? If you make contributions to your own qualified retirement plan, you can also be eligible for personal deductions.
Did you know that you can deduct the cost of books, classes, or training manuals designed to improve your work ethic or expertise?
It’s important to note that you’re only eligible for these small business tax deductions if you’re purchasing products directly related to your current career. If you’re thinking about a future career or switching careers, the expenses are not deductible.
Just know that if you’re taking specific fees or professional certifications related to your job, you can write those off. Want to attend a special conference or training related to your line of work? It’s also deductible.
Finally, most education costs are also considered small business tax deductions. Like with other self-improvement costs, the education must be related to your direct line of work. That means that any associated education costs must be used to further develop your skills and run your business more productively.
In general? The IRS appreciates you wanting to further your education. That’s why they’re generous in providing you with deductions for advancing your skills. Education isn’t just in the form of traditional classes. Don’t forget the costs of any seminars, webinars, subscriptions, books, or workshops that you may attend.
6. Initial Start-Up Costs
Is it your first year of business? If so, it may be costing you more than just a bunch of headaches and sleepless nights.
The first year of business is undoubtedly stressful, confusing, and usually expensive for entrepreneurs. However, it’s a necessary milestone. After all, everyone needs to start somewhere, right?
Fortunately, the IRS knows this and does offer somewhat of a break for fresh-minded business owners (even if you haven’t opened your doors yet). You can typically write off any costs associated with creating your trade or business. This may mean analyzing products or labor, providing surveying and field work, visiting potential office locations, and any other related costs with investigating or researching the business opportunity.
You can also write off expenses related to preparing your business to actually open. This may refer to employee training programs, initial wages, travel costs to distributors or suppliers, advertising fees, and consulting fees with accountants and attorneys.
Finally, you can also deduct organizational costs. If you legally set up your business as a corporation or partnership before the end of your first business year, you are qualified for these small business tax deductions. They typically include state funding fees, salaries for temporary staff, meetings, legal expenses, and filing and accounting costs.
You should note that the IRS allows maximum small business tax deductions of $5,000 for startup costs and $5,000 for organizational costs.
7. Business Meals
The days of writing off fancy corporate dinners with reckless abandon are definitely over. Too many entrepreneurs found the loopholes and abused those small business tax deductions.
Today, the IRS has some relatively strict rules on these types of write-offs. You can’t just deduct the cost of any meal somehow related to your line of work. In fact, entertainment expenses are no longer deductible and meals are only 50% deductible.
In general, any qualified expense must be directly related to or associated with your business. You need to genuinely ask yourself if the purpose of this meal or entertainment venture was to increase the value of your business. With that said, the costs must obviously be reasonable. If your business is pulling in $20,000 per year and you’re attempting to write off $15,000 in business meals, you’re going to raise some serious red flags with the IRS.
8. Travel Expenses
Ah, one of the best small business tax deductions. It’s also one of the most confusing. For a trip to qualify as business travel, it must be away from your tax home, ordinary, and necessary. You need to be traveling for more than a normal day’s worth of work.
In general, the IRS approves the following small business tax deductions related to travel:
- Meals and lodging
- Dry cleaning
- Taxis, Ubers, car rentals
- Plane, train, or bus fare
- Business calls
- Luggage or baggage shipping
- Ordinary expenses related to business travel
- Parking and toll fees
Like with most tax write-offs, it’s important for you to keep meticulous records. You want to be able to prove the amount of each expense, dates, and details. If you’re using your own car, make sure that you have an accurate mileage log as well.
Still Overwhelmed? Consider Outsourcing.
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 the thought of filing your own business taxes, even with the tips outlined in this guide, you may want to consider hiring a tax accountant.
Does Your Small Business Need a Tax Accountant?
When you’re an average person working a single job, filing individual taxes can be done fairly easily and take less than an hour. If you’re a business owner, however, you could have your assets spread out in a variety of ways, making it difficult to know what you can claim and what you can’t. A tax accountant will help you sort your personal finances from your business finances to your income.
Here are 10 reasons you should hire an accountant to keep your small business’s finances in order:
1. You’ll Save Time And Money With A Tax Accountant
As a business owner, there are so many issues you need to juggle on a daily basis. Tracking down and organizing invoices for every sale and transaction isn’t always the first thing on your mind. Between staffing, operations and inventory management, it can be easy to lose sight of how important it is to stay on top of your taxes.
A tax accountant could relieve you from the stress of handling all the odds and ends of your business. They might also find places where you’re mishandling or misplacing money.
Business owners can be so overwhelmed with the tasks related to running a business that they can forget to provide for themselves. It might not be the first thing on your mind, but your accountant can ensure that there is money going away for your retirement when it’s all said and done.
While your business plan might be strong, your ability to manage your finances efficiently might not be your strength. A tax accountant will make sure that you’re making smart business decisions every time money is gained or spent.
2. Tax Laws Change
In 2018, an extensive tax reform law was enacted that could have a large effect on your business. Staying on top of these changes is imminent and not taking the time to educate yourself on the changes will be no excuse if you get audited.
If you don’t have time to stay on top of it, you should consider finding a good tax accountant. They can ensure that you don’t miss out on any major payments or new exemptions. If you fail to pay enough, you could end up with a long list of penalties from the IRS.
Your accountant will know what changes will affect you and ensure that you’re in the safe zone when tax time comes around.
3. Your Business Is Brand New
When you start a business, you might be focused on one idea or how you want to change an industry. You might not be thinking about all of the minutia and boxes you need to check. There could be “i”s left undotted and “t”s left uncrossed, and they could leave your business in limbo after you thought you’d taken care of everything.
You might think that you’ll have high taxes to pay, with your individual payments on top of what the business accrues. If you qualify for that “pass-through” status, you could end up simplifying your tax return at the end of the year.
Self-employed people are entitled to some pretty big write-offs that you should be aware of. Having a tax accountant double check all of your work and look for mistakes could keep you from overpaying and keep you on the good side of the IRS.
4. If You Owe Back Taxes
If you or your business owes any back taxes, a tax accountant can help you square up your balance with the IRS. They will establish how much you actually owe, looking through old filings to make sure the amount the IRS claims you owe is accurate.
They can help you to establish a payment plan so that you don’t encounter any other problems in the future. When you’re just a small business owner facing a big government entity like the IRS, you could be overwhelmed. Your tax accountant can be an important intermediary to help you navigate.
Your tax accountant will stand up and fight on your behalf to ensure that you don’t overpay and that you don’t make the same mistakes twice.
5. Different Sources Of Income
If you’re the owner of your company taking another income as the CEO or taking a salary from another job, tax filing will be complicated. In order to ensure that you’re accurately filing everything, your tax accountant can assess your situation.
If you have more than one form reporting your income at the end of the year, you could have your work cut out for you. Your accountant can make sure you don’t have to go it alone.
6. Staff Isn’t Enough
While you might have good people working at your front desk, handling your payroll, invoices and day-to-day business, they aren’t accountants. For dealing with specific accounting needs, you might need to hire someone who knows how to handle your taxes.
Staffers who are tasked with handling your taxes as a secondary role will likely make mistakes. Those mistakes could cost you tens or hundreds of thousands depending on the size of your building. Making a mistake with the IRS could lead to an audit and cost you even more.
Going with a professional accountant is the only way to avoid this.
7. Your Company Owns Real Estate
If you own your building or other property, you might need a hand managing the tax responsibilities that come with owning property. There are unique tax concepts that are connected to renting, as well as some benefits you could be taking advantage of.
Knowing the ins and outs of real estate law might not be your accountant’s forte but they will likely know the tax-related benefits you could tap into. Ask your accountant what they can do to help you save and generate even more income with your properties.
8. Your Credit Affects Your Business
If you’re the sole proprietor of your business, your credit is your business’ credit. If your business needs a loan, your credit could make all of the difference.
Business owners who have already taken out some loans might need help balancing their payments to ensure that their credit score keeps climbing. To ensure that your bills keep getting paid and to find ways to get more loans to help your business grow and expand, hire a tax accountant.
9. Your Business Absorbed Another
If you are doing well in your industry, you might have the opportunity to absorb a smaller competitor. While this can be an exciting process where you have access to more resources, staff, and services, it can have serious ramifications on your tax filing.
Talk to your accountant and make sure you’ve checked off all the boxes before you sign anything. While it might seem like you’re getting this business for a low price, taxes could make that cost multiply if you don’t play your cards right.
With all of the extra payroll, insurance and office space costs you could be facing, there could be a lot on your mind. There are staffing issues to deal with on a day-to-day basis as well as reimagining the infrastructure of your company and how all the moving parts work.
A tax accountant can be the perfect advisor to tell you what is possible and how much it will cost you.
10. Change In Leadership
If you’ve been through a change in leadership or if you’ve stepped up or down, you could see a shift in your tax structure. If you’re no longer the sole proprietor or you’re no longer employed by your company, you might need to pursue a different way of filing taxes than the year before.
Major company and personnel changes can be exciting. They can bring in new energy and new ideas, changing the direction of your company for the better. But the added stress of changing can be a challenge for even the savviest business owner.
Calling your tax accountant can help you prepare for any bumps in the road.
Think You’re Ready to Hire a Tax Accountant?
Being a part- or full-time business owner can take a toll on your personal life. You’ll come home each day feeling exhausted and seeking refuge from your family and friends. Handling your taxes on your own will make those moments few and far between.
If you’re ready to find the perfect tax accountant, contact us today.