Tax season is a very crucial time for small business owners. As an entrepreneur, it’s up to you to make sure you’re following the laws and guidelines of filing your taxes, even if you have an accountant.
You could be missing out on a larger tax return or paying too much in income taxes if you’re unsure of the specific requirements regarding things like deductibles. Make sure you know the deadlines, necessary documentation, and forms that are necessary when filing taxes.
Resources
Filing your taxes properly and efficiently can seem a bit overwhelming, but it doesn’t have to be. There are plenty of resources online and in person to help you understand and complete your taxes on time. The IRS has an entire website dedicated to helping small business owners understand the specifics of their own tax filing and the Small Business Administration also provides additional information that can be extremely helpful.
If you’re thinking ahead, consider purchasing accounting software that will help you keep track of your bookkeeping throughout the year, which will make filing your taxes much easier.
Deadlines
One of the biggest concerns a small business owner has during tax season is knowing and understanding all of the deadlines for each form. To make it easier we’ve compiled them all for you here, this way you have one less thing to worry about.
January 31, 2017: 1099-MISC forms must be issued to all recipients of non-employee compensation.
February 28, 2017: 1099-MISC forms must be issued to all other required recipients. Paper filings must be submitted to the IRS by this date also.
March 31, 2017: Electronic filings of 1099-MISC forms must be submitted to the IRS.
April 17, 2017: Form 1040 and all attached schedules, including Schedule C, must be filed with the IRS.
Forms
Small businesses require specific forms for their tax filing based on the number of employees and total revenue that is acquired each fiscal year. It’s incredibly important that every single appropriate form is filled out for your business, otherwise you risk having a frustrating conversation with the IRS and possible penalties.
Schedule C: Small businesses with one owner are structured as either a sole proprietor or a single-member LLC. Both types of businesses report income and losses on Schedule C (Profit or Loss for a Small Business), which is an attachment to the owner's personal tax return filed on Form 1040 (U.S. Individual Income Tax Return).
Schedule SE: Sole proprietors with net earnings of at least $400 must complete Schedule SE (Self-Employment Tax) and submit with Form 1040. The self-employment tax rate is 15.3 percent and represents both the employer and employee portions of the social security and Medicare taxes.
1099-MISC: Payments made to lawyers, unincorporated service providers and independent contractors must be reported to the recipient as well as the IRS if the amount paid totals $600 or more for the year. Additionally businesses must report royalties of at least $10 and rent for office or warehouse space. These miscellaneous income payments are reported on Form 1099-MISC. The penalty for failure to issue these forms on time ranges from $30 to $100 per form, depending on how late the forms are issued.
Form 8829: If a business operates out of the owner's home and meets specific requirements (see below, Conditional deductions) then the business can use Form 8829 (Expenses for Business Use of Your Home) to write off the home office expenses such as rent, property taxes, utilities, maintenance and related costs.
Form 4562: Businesses with Section 179 property, capital purchases or an automobile must complete Form 4562 (Depreciation and Amortization).
Deductions
A tax deduction is simply an expense incurred by running your business, specifically one that is ordinary, necessary, and appropriate to operate your particular business for a profit. The total cost of your deductible expenses is subtracted from the overall revenue to determine a profit or loss, and that number is entered into your tax forms.
Typically, these deductions are things like rent, utilities, insurance, and some marketing costs, although this list may vary depending on the industry your business is in.
The key to deductions, especially as a small business owner, is to distinguish the difference between business deductions and personal ones, particularly items like your cell phone bill or car payment. If you’re running a business out of your home, your deductions may be conditional, meaning things like your mortgage interest could be deducted. Always confirm with IRS resources before filing these deductions.
Documentation
In order to properly file your small business taxes, and to make sure you’re getting the right amount of money back or only paying what you absolutely have to, you must have the correct documentation. It can be overwhelming to try and collect all of your documents in the final moments of tax season, so be sure to keep a functioning system throughout the year. You may not have to submit these documents to the IRS but it’s essential that you store them in case of future audits.
- Gross Receipts
- Purchases
- General Expenses
- Travel, Gift Expenses
- Assets
It’s important to maintain a good system for your business’ bookkeeping, especially when it comes to filing your taxes. As a small business owner, it’s up to you to know exactly what is required this tax season. Please contact us to get more information!
