As a small business owner, you may feel overwhelmed by business tax preparation and management, especially when the deadline approaches. You wouldn't want to fall on the wrong side of the IRS or pay fines. The ideal way to avoid repercussions is to be prepared with the necessary knowledge and expertise.
Explore five business tax preparation tips to equip you.
1. Understand Your Tax Form and Deadline
Every business must pay taxes, but your business type determines how and when to file. For instance, if you have a sole proprietorship, you must fill out form 1040 schedule C by April 15th. On the flip side, form 1065 is available for partnerships, and the deadline is March 15th. Nonetheless, if the deadline falls on a holiday or weekend, you get an extension to the following business day.
2. Have a Succession Plan
Establish a plan to continue your business when an unexpected crisis or accident happens to you or upon retirement. A succession plan has associated tax benefits which you could check with your accountant or attorney. If you don't plan early, you leave your business vulnerable to unnecessary taxes and conflicts of ownership.
3. Gather and Compile The Required Records
You need various documents from which you will draw figures to file your business taxes. The records must be accurate and relatively easy to gather if you have a good accounting or bookkeeping system. After you have all the necessary documents, crunch the numbers you need to file your returns. But if your accounting system is in order, all you need to do is double-check your figures.
4. Request for an Extension if You Run Out of Time
Business tax preparation can prove time-consuming. On top of that, you need to be accurate. You won't gain much if you rush and, in turn, file erroneous records. So, if the deadline is around the corner and you still have much work, fill out the necessary forms to request the IRS extend your period. However, the extension only increases the deadline to file and not the payment deadline.
5. Familiarize With Tax Deductions and Regulatory Amendments
The global pandemic caused many changes to the tax front. Some changes increased eligible tax deductions, especially for small businesses. For instance, the home office tax deduction applies to small business owners who work from home. Other deductions include business supplies, self-employment tax, and insurance. Take advantage of the deductions to save some money.
Business tax preparation isn't complicated if you have the proper knowledge. The tips above guide you to have a smoother preparation, management, and filing process. Also, always stay on top of regulatory and tax requirements changes to file your returns based on the latest requirements.
Lastly, if all these are time-consuming and you have other critical business aspects to take care of, contact a local tax preparation service to help you file your business returns.