You’ve opened a booming small business. You couldn’t be prouder of how well you are doing!
Then you remember… it dawns on you… small business taxes. How do you do them? Where do you start?
Whether it’s your first time filing taxes or your millionth time, there may be some simple things you should know that will make the process easier for you.
If you are interested in getting some tips for your taxes, keep reading to learn more.
Why Care About Small Business Taxes?
For any small business owner, tax season can be a confusing and irritating time of the year.
Even the smallest of businesses still have to pay taxes, but understanding how much you have to pay, where you pay and where you don’t, and when this all has to happen can be a little bit perplexing.
By attempting to learn and understand these things earlier, you will find that paying your taxes correctly and on time will be a breeze in the future. You may even be able to save yourself a little bit of money.
1. Is Your Business Really a Business?
If you are just selling a few items online, this really isn’t the type of information you need to file taxes. If you are operating a whole, full-fledged business, this is what you need to know. It is important to recognize the difference.
In some cases, the IRS may view your business as being a hobby. This can cause a lot of tax problems down the road.
There are some things the IRS will pick up on that will cause you to lose your status in their eyes. For instance, if you are not really making any money with your business and it is more for fun than for profit, they will start to question you.
2. Find out Your Employer Identification Number
Every single business out there needs to have an Employer Identification Number (EIN).
It is easy and simple to apply for an EIN through the IRS. Another thing is that it is totally free, so there really isn’t a great reason to not do it.
3. Know How to Prepare Your Taxes
Some people like to do their taxes on their own and others like to have hired people to do the taxes for them. Know what your plan is before the deadline hits you.
If you want to do them yourself, do your research and make sure that you have all of the items you need. For instance, you likely will need to have the last year’s tax return for the business, payroll information, bank statements, and partnership agreements. These are just a few examples.
Holding onto all of those little things, like receipts, sales records, or wages, will be helpful here too.
Another important thing to note here is that any small business financing options you may have usually won’t be considered taxable income. There are some exceptions, however, so understand any loan you have backward and forward before signing off on it.
Keep track of the things that you need and it will make it a lot more simple to follow the procedure of filing your taxes. Remember that taxes for small business owners look different than those of large business owners.
4. Find All of the Tax Deductions Possible
You can get a tax deduction for the things you buy for the business that help make the business function. The IRS doesn’t have a master list of what these items may be because every business will need different things.
For an expense to be deductible, it has to be something that is needed and can’t be anything too exorbitant.
This may be things like utilities, software, advertising costs, supplies, furniture, or property payments. It really depends on what your business is, but have a running list going to make this easier during tax season.
5. Which Type of Entity Are You?
There are four types of businesses that you can have. These are sole proprietorship, partnership, LLC, and corporation.
Each of these are different in their own way and if you are a small business, you likely are not yet a corporation. When you set up your business, you will have to decide which of these you will fall into.
A sole proprietorship is when the business owner registers the business with their state and gets a local business license. The partnership business is similar, but has two or more people involved.
The LLC, or limited liability company, is a type of business that business owners may want if they want to have more protection from liability. This can be done with one person or with multiple people in a partnership style as well.
6. Track All of Your Expenses
Anyone in business knows that you have to know how much you are spending and how much you have coming in. Otherwise, how will you know if your business is doing well or not?
When keeping track of this information, make sure that you are doing so in a way that is organized. This will be something you thank yourself for later!
A great example of an expense that may seem confusing is travel expenses. If you have to travel for business, the IRS will let you deduct 100% of the cost for the travel and 50% of the cost for the meals or entertainment with clients.
Keep your receipts for everything and make sure that you have everything you need ready to turn in when the time comes.
7. It Can Be Easier with a Little Help
No one really enjoys doing math and numbers like this. Okay, maybe some people do… but if you don’t, there is always the option of hiring someone else to help you out.
If that isn’t quite in the budget, it may be worth trying to get some extra resources to help you as well, such as books or tutorials.
You’re not the only person that has had the questions you may have, so you probably can find some pretty good information if you know how to research.
8. Do You Use a Home Office?
Some people don’t like claiming they have a home office because they think it will automatically mean they will be audited in the future, but they are actually more common than you might think.
For this to count in terms of taxes, you need to have an area in your home that you use only for your business. That means the living room or the bedroom are not going to cut it.
The amount of the deduction you may get will be based on the size of the space that is used as an office.
9. When Do You Pay Taxes Again?
If you owe at least $1,000 through your small business at each quarter, you will have to pay taxes each quarter. This is something that can sometimes surprise people that haven’t been in business before because it can seem so often.
These are four deadlines that you have to keep track of each year. Be sure to know the dates and give yourself reminders when the time comes.
10. Try Tax Software
Some people, even those without businesses, use tax software to try and make the entire process of dealing with taxes a little more simple.
A lot of the software out there will be able to accurately do your taxes and even find you more deductions that you may not have originally caught.
When tax time comes around, some people actually consider this to be the best way to do your taxes. For the technologically savvy, it could be something to consider.
Pay Those Taxes!
Small business taxes aren’t fun, but they are necessary. Knowing how, when, and what to pay will help you in the long run stay.
If you have any questions about your small business taxes, be sure to contact us to get some more information. We are more than happy to serve you.