Take the Stress Out of Small Business Taxes With This Guide
Regardless of your business structure, you are obligated to pay taxes on your earnings. Organizing and filing your small business taxes can be a pain, but there are ways to make filing easier. Use these tips to help simplify the process.
Understand Your Tax Obligations
The first step is identifying the taxes you are obligated to pay based on your legal business structure. The IRS has different requirements and forms for each business type. For example, if you are a sole proprietor, your business taxes are incorporated into your personal income taxes, but you are also obligated to pay self-employment tax. However, a corporation is considered a separate business entity, so the company is taxed separately from your personal income.
Next, identify when you must pay taxes. All business structures are required to file annual taxes by April 15. In addition, sole proprietors and limited liability companies are responsible for paying estimated quarterly taxes.
Organize Your Finances
To make filing small business taxes easier, keep good financial records and have a simple bookkeeping system. Track all income, expenses, assets, receipts and invoices. Establish efficient accounts payable and accounts receivable systems to ensure you are paying bills and receiving payments on time. It is also helpful to categorize your income and expenses. For example, you can categorize expenses as operational costs, office supplies, travel, dining, education and mileage.
Learn About Deductions
Small businesses benefit from many tax advantages. Read up on tax deductions and determine which expenses you can deduct when you file. You can usually deduct lease payments, mileage, equipment, interest, depreciation and even costs associated with filing your taxes. Categorizing your finances is extremely helpful for identifying eligible deductions.
Consult a Professional
Consider hiring a professional tax preparer for your first time and when your finances are complicated. A professional can save you time and money in the short- and long-term. You simply hand over your financial documents, and the tax preparer takes care of all the details. Also, a professional tax preparer is an excellent resource for finding deductions and credits you may not know exist. You can also learn useful tips for the following year.
Tax season can be a stressful time. Make life easier by organizing your finances, learning as much as possible about small business taxes and consulting a professional when you have questions. The more knowledgeable and organized you are, the more tax advantages you may discover and the less stress you will experience.