How To File Taxes For Your Small Business: Tips to Prepare
Taxes aren’t an exciting time for most of us. However, you can configure your business documents throughout the year in a way that make filing taxes as simple as possible in just a few steps: knowing your small business, finding your correct forms, gathering all appropriate documents, and filing self-employment and estimated taxes.
Table of Contents
Understand Your Business Categorization
The first thing you want to do is determine the type of small business entity that you’re running: sole proprietorship, partnership, or LLC. Depending on what you have filed your business under, your tax filing will be different. You’ll want to understand each of these business terms, which you should be familiar with by tax filing time since you’re business is already up and running, and know how they each make a difference when it comes to your taxes.
Depending on the type of partnership or sole ownership you’re a part of, you’ll have more or less responsibility in paying business taxes. As such, before tax time, it’s always a good idea to sit down by yourself or with partners (when applicable) and determine who is going to take care of what aspects of filing taxes. Of course, there will likely be some overlap if multiple people are owners of the same small business, but there will also be individual tax deductible items, or other items that need to be reported, that can be done by a sole individual. You don’t want to have any inconsistencies in your tax reporting, so make sure you discuss all of this before tax season.
Find the Right Forms
This brings us to the specific forms necessary for filing your taxes. You’ll need to know what particular form is associated with your business. Not all forms are created equal, this means that your form will be different if you have an LLC, partnership, or sole proprietorship. Don’t make the mistake of grabbing just any form for filing, because it will be rejected and you’ll likely start the wrong taxing processes associated with your small business.
If you’re filing online, you can usually get some help finding the tax form that you need through the program of your choice. However, it doesn’t hurt to reach out to a tax professional or at least do some research to make sure that you’ve got the right one. Doing research ahead of time is crucial to ensure that you’ve got everything lined up properly before your tax due date approaches.
Speaking of, if you’re feeling overwhelmed by your taxes, especially if it’s your first time filing, you can try and file for an extension. You may be able to get your due date extended by six months, which can give you plenty of time to get all of your documents in order. However, it’s not guaranteed that you will be approved for the extension and it does not negate any taxes due during that time. You’ll still need to calculate every bit of taxes due during every month of the year, even if you are granted an extension.
Save All Appropriate Documents
Needless to say, once you’ve got your correct forms and you’re ready to start filling, you’ll need to know all the little financial ins and outs of your small business. How much money did you make this year? What did you spend your budget on? You’ll need to gather your balance sheet for the entire year and keep take a look at your receipts for everything that was spent in relation to your business. You can report a lot of these expenses as tax write offs, especially when you’re a brand new business owner, which is why it is so incredibly important to keep track of everything you spend your business budget on.
Again, depending on what type of small business you selected, certain things may be deductible as necessary for your business. Research is always your best friend in these circumstances, but standard deductions include: cost of goods sold, investment expenses, business use of your home or car, business trips, employee pay, retirement plans, start-up costs and more.
The IRS will determine what is tax deductible and what is not. However, a good rule to follow is deducting only items that are deemed as necessary costs for the maintaining of your business. These are common small business costs, like the ones listed above. This means, you can’t deduct just anything, so be careful and do your research before you mark something as a business expense or you could be facing a rejection and you’ll just have to file all over again anyway. It’s worth it to be as accurate as possible the first time.
In that same vein, it’s important to be transparent, especially because a mistake could be caught on later filings, if it isn’t caught the first time. So, if you notice that something isn’t quite right after you already filed, you can request that your taxes be amended. Find the correct amendment forms, depending on your small business entity, and file your correction as soon as possible.
Know When to File
Most small business owners end up filing some form of taxes each quarter. Filing business taxes also applies to your personal taxes. It’s incredibly important to keep your business and personal expenses separate for this reason You’ll also have to pay a tax for being self-employed. Since you likely don’t receive a proper paycheck that has the usual social security and medicare tax deductions already included, you have to do those separately. You can calculate the exact number of self-employment tax that you need to pay based on what you earned and via your small business earned and how those earnings are allocated throughout your business.
Lastly, you may also be subject to estimated taxes on a quarterly basis depending on what you salary looks like with the company. You also have to pay state and federal taxes for your personal earnings that you take away from the company. These amounts are estimated quarterly and are paid to the IRS by you. If they find that you’re not paying enough taxes, you might end up having to pay more. Once all your other deductions have been made, they might decide that you’ve paid enough and you could get a refund if all the other aspects we’ve talked about line up correctly.
Filing taxes by yourself can be tricky and time consuming. It’s not a bad idea to invest in yearly or quarterly professional tax filing when you’re dealing with something as strict as your taxes. However, not everyone has the time or means to seek a professional, so as long as you follow these guidelines, you can find the forms you need to file your small business taxes properly.
For more tips and guides, visit our small business resource center.
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Trisha is a writer and blogger from Boise, ID. She is a dedicated vegan, an avid gamer, cat lover, and amateur SFX artist.
This post was updated February 28, 2019. It was originally published October 20, 2017.