3 How To Prepare For The Small Business Tax (Complete With Pictures)

(doylc.com) How to Prepare for Small Business Tax - Tax preparation must begin immediately for small business owners. An organized accounting system needs to be put in place to ensure you have accurate records and receipts for all deductions. If you do it right, you'll have all the information to make sure you're getting the best tax breaks. To prepare, you can learn to get organized, keep track of the right information, and avoid costly mistakes.

• Getting organized

Consider consulting an accountant to help you organize. A Certified Public Accountant (CPA) can help you set up a paper or software accounting system as soon as you start your business so you can keep your records up to date. The CPA can also notify you of changes in tax laws and whether you are required to file quarterly, semi-annual, or annual tax returns.

If you eventually decide to do the taxes for your business yourself, it's still a good idea to talk to an accountant at the outset to help you get organized and save in the long run. Ask for recommendations from other small business owners to see which accountants in the area charge fair prices, are trustworthy, and do a good job.

Submit IRS Form SS-4. If your business is just starting out, one of the first things you need to do to keep detailed tax records is to obtain an Employer Identification Number by completing Form SS-4 and filing it with the IRS.

It's like the W-2 you give your employees, but for the business itself.

Submit an Expected Taxable Income form. In order to get your taxes processed on time, most companies file their projected earnings figures year-to-year, and then make adjustments in the next fiscal year based on how things actually went. To do this, you need to fill out the correct form depending on how you have structured your business:

If your business is structured as a sole proprietorship, you must complete Form 1040-ES.

If your business is structured as a corporation, you must complete Form 1120-W.

Find the right forms according to the structure of your company. Depending on the type and structure of your business, you will need to use different forms to properly prepare for your taxes. This is one of the reasons it's a good idea to consult a CPA, especially when you're starting out. To learn more about the various forms required for partnerships, corporations, sole proprietorships, and LLCs, go to the IRS Small Business website or click here.

Keep a tax diary. Make sure you or your accountant add sales and receipts to a tax journal weekly or monthly. It's important to keep track of receipt dates, amounts, payees, check numbers, and employee accounts.

It's fine to use a legacy ledger like Ebenezer Scrooge did, but most small businesses use a software system of record like Quickbooks, Run a Small Business|Quicken, or PeachTree because it automates a lot of the functions that can be done by Updated with tax laws year by year.

Basically, you need to keep track of what's coming in and what's going out, and cross-reference that information on a day-to-day basis. For more information on how to keep an eye on your small business finances, read this article.

Collect a W-4 from each employee. You will likely need to apply for an Employment Identification Number (EIN) or tax number and report any hired employees. The W-4 should be completed by each employee upon hiring.

If you subcontract work to independent contractors or freelancers, they must complete a W-9 form and request a 1099-MISC form when tax time is up.

Once these items are filed, you must begin to withhold wages for tax purposes. Under no circumstances should you borrow money from the employee's withholding tax, as you may face severe penalties.

Create a separate worksheet for each type of information. You need to be able to quickly compare sales to expenses so you can calculate each person's tax law deduction. Comparing an employee's travel expenses in June of last year with stationery collected in March of this year shouldn't take more than a few clicks of the mouse.

For a more detailed description of what is tracked and how, see the next section.

Keep a calendar of important tax dates. If you need to file throughout the year, or if you need to turn all of your paperwork with your CPA by a specific date, these are important deadlines to meet. Set reminders on your computer and/or mobile phone to ensure you are not charged for being late.

• Keep the right records

Keep detailed records of all earnings. In order to calculate your expected income taxes, it's important to break down all of the monies that come in over time. In your ledger you need to keep track of:

- Gross receipts for sales and sales records

- Inventory

- Items have been removed for personal use

- Returns and Allowances

- Bank and savings account balances

- Investment interest

Keep track of all expenses. It's especially important that you track expenses in as much detail as possible to have the best chance of making optimal tax-time deductions. It's important to keep track of everything you buy through the company, as well as everything you personally buy for the company.

Keep track of transport and travel costs, e.g. B. Mileage, tolls or parking fees, airfares, hotels, meals, tips, taxes and internet costs.

Keep track of office expenses such as rent, company vehicles, office supplies, home office square footage, home office rent or mortgage, repairs or maintenance, and depreciation of assets.

Track your employees' payslips and contributions. Applicable expenses may include W-2 and W-3 ​​payslips, Health Savings Account (HSA) contributions, health insurance premiums, and payments to contractors.

You can also keep track of legal fees and business insurance such as worker's compensation or liability insurance premiums. Business-related legal fees are often deductible.

As a small business owner, keep an eye on your personal salary. It should be documented how your salary is determined. It's usually not legal to just pay yourself with all the profits from the business, depending on what you get from year to year.

• Doing taxes

Submit your employees' tax information a few months in advance. Gather your tax records at least a few months before taxes are due. You must send W-2s or 1099s to your employees or contractors, respectively. If you do the taxes yourself or hire a CPA, make sure you do your taxes well in advance in case there are any problems.

After you submit these, you and your employees will receive your forms when tax time rolls around. Generally, these are submitted in early January to allow sufficient time for re-submission until April.

Decide how to do your taxes. The easiest way to take care of all your taxes is to rent them out. For example, you can use a software/e-files service, a CPA, an accountant, or file them yourself. Obtain any necessary tax forms or speak to your CPA about what they need.

Most e-filing services, especially those associated with accounting software, typically have automated tax preparation services that fill out the required forms while answering questions about your business.

Subtract any necessary expenses. The IRS defines all deductible expenses as anything that is "necessary and ordinary," meaning you have a huge window of opportunity to deduct.

Make sure that all expenses pass the so-called "laugh test". If something doesn't seem reasonable, it's likely to be reported should you face an exam.

In family businesses, be especially careful when making payments to family members. Family businesses must keep very accurate records to avoid suspicion.

There are some important deductions that often go unnoticed if the business owner is unaware and doesn't keep receipts or if you don't use a CPA. For example, in 2010 the US government passed the Small Business Jobs Act, making it legal for cell phone expenses to be deductible like other assets.

Archive all tax records for 5 to 7 years. This is the time when you may be under federal scrutiny, so it's important to keep all your well-kept records for at least that long to give yourself a great safety net. Another good reason to use a software-based recording system.