Tax Day is quickly approaching, and as a small business owner, you want to start preparing sooner rather than later. Whether you are ready or not, your taxes must be paid by April 15th, unless this date falls on a weekend or holiday, in which case they are due the following business day. And if you are filing as a partnership or S Corp, your taxes are due even earlier (March 15th) with extensions unavailable. No matter which case you’re in, none of this should cause you to panic. You still have time to get ready for tax day.
To help alleviate some stress, our experts at High Rock Accounting have compiled a checklist to turn taxes into just another annual routine. Best of all, you can start preparing many of these checklist steps and documents today.
Who’s Filing Your Taxes?
The first step is to determine who is preparing your taxes, you or a tax professional. If your small business pays contractors, moves inventory, or sells any goods or assets, we always recommend seeking help from a Certified Public Accountant (CPA). A CPA will protect your business from mistakes, help you navigate eligible write-offs, and give you peace of mind when your taxes are filed.
A tax schedule is a form the Internal Revenue Service (IRS) requires you to prepare in addition to your return when your income or deductions come from certain places, including charitable contributions. The kind of tax schedule that you will be required to file depends on the structure of your business, such as if you are a partnership, proprietorship, limited liability corporation (LLC), or an S-Corporation. While we don’t want to scare you with more paperwork, you should be aware that there is little room for error when it comes to compliance with the IRS. This includes overlooking or misfiling your tax schedule.
Schedule C Income Tax Forms
More than likely, you will have to file a Schedule C Income Tax Form for your business taxes. In addition to the information that identifies your business, you should prepare yourself to complete information regarding inventory and the cost of goods sold. Some business owners may have an issue maintaining such records. However, by integrating a routine of scanning receipts, maintaining electronic records, and tabulating costs as daily or weekly tasks, such information can be organized before tax seasons. If such tasks prove to be tedious, it may be worth the effort to seek out apps and other business software that automates such tasks.
Next, you need to ensure you have sufficient proof of all tax deductions you claim, including business expenses. Note, travel and business meals are still deductible, while entertainment is not. While you should maintain receipts by default regarding business finance, bank and credit card statements should also be acceptable.
Other deductibles include depreciation for any equipment you use and the business usage of your home. You calculate your equipment depreciation cost on the purchase price and the expected number of years for useful life per instructions of the IRS. If you are not familiar with estimating depreciation, you can familiarize yourself using the General Accepted Accounting Principles (GAAP).
Lastly, if you conduct your business from your residence, make sure to have information regarding the square footage of the space used for your business relative to the square footage of your home. Any proportional use of equipment for personal use versus business use must be accounted for when calculating deductions.
If you have ever worked for an employer, not as a contractor, you more than likely remember paying payroll taxes for Medicare and Social Security. Usually, 12.4 percent goes toward Security, while 2.9 percent goes toward Medicare. Combine these two percentages, and the total amount is 15.3 percent. When you were someone’s employee, your employer paid half of this amount.
As a business owner, you are responsible for this amount based upon your net business profit, meaning that you need to plan for varying profit. We recommend incorporating your self-employment taxes into your quarterly payments to make budgeting for what you owe easier. You can calculate this portion of your business taxes using the Schedule SE Form.
Your Business Is Not Your Only Income Source
In some cases, your business income may not be your only source of income. For example, working somewhere else, running a side business, opting to file as married, or even renting out your investment property in addition to owning a business. In these scenarios, you will report your business income from your Schedule C on line 12 of your Schedule A form.
Where and How to File
You should file all the necessary tax forms together by mail or online. If filing by mail, be sure your return is addressed correctly. Based on your home address, the IRS assigns a tax return office where you are expected to file. Compared to online, tax returns filed by mail generally experience a slower response from the IRS. If instead, you use a tax-software, like Xero, or a tax preparer, your e-filing fee will be included in the cost.
Filing an Extension on Your Taxes
If Tax Day is approaching too fast, and you absolutely won’t be able to file on time, there are ways to apply for an extension on your taxes. Extensions are available for emergencies, lack of records, or a need for verification of income, even in the case of business income.
If you apply for an extension, you are tentatively given up to six months to fully file your tax return, which means the new deadline is October 15th. Just like April 15th, if this date falls on a weekend or a holiday, your taxes are due the following business day.
Filing an Amended Tax Return
If you find a mistake after filing either your personal or business taxes, you must submit an amended return immediately, using Form 1040X. This form applies to all tax schedule forms, including your Schedule C.
Paying Estimated Taxes
Although the income from your business may vary annually, the IRS expects you to pay taxes on your income throughout the year with estimated quarterly taxes. Typically, business owners pay estimated taxes quarterly, on the 15th of April, July, October, and January the following year.
To determine your estimated taxes, you or your CPA can make a rough calculation on your expected annual tax liability, using Form 1040-ES. Although these tax payments are estimations, you or CPA must exercise care in making these calculations because there are penalties for underpayment.
The Qualified Joint Venture: Special Filing Cases
While most businesses are shared between more than one member, they are often a partnership, not a joint venture. A joint venture is established by a formal agreement, outlining the contribution of each member and the conditions in which it exists.
The advantage of a joint venture is the ability for the members to share the cost while retaining ownership of their property or original investment. In this scenario, all members involved in a joint venture agreement may file a Schedule C form for their individual shares of the venture. Depending on how the joint venture agreement is written, there may be complications regarding the tax liability of each member. In these cases, it is best practice to involve a CPA.
Still feeling overwhelmed about Tax Day? Don’t risk figuring it out on your own. Seek an expert to help answer your questions, provide consultation, or prepare your taxes on your behalf. And this Tax Season, we are proud to announce that we have partnered with tax expert Adam Cary, so we can better serve our clients by offering tax services under the High Rock brand.