By T.J. Porter, WCI Contributor
If you’ve just started a practice or are working for yourself for the first time, dealing with taxes can seem daunting. Even people with relatively straightforward tax situations loathe tax preparation, and adding a business to the mix just makes things more complicated. Having a good tax preparation checklist and knowing exactly what you need to get done can help. Here’s a checklist for if you have to file taxes for your small business or if you're self-employed.
Figure Out Which Taxes You Have to Pay
The No. 1 thing to do when filing business taxes, especially if it’s your first time doing so, is to determine which taxes you have to pay.
Everyone needs to pay income taxes, but depending on how you’ve set up your business, you might have to deal with other taxes. Those include:
- Self-employment tax: This tax covers both the employer and employee portion of Medicare and Social Security taxes. The rate can be as high as 15.3% on your earnings from self-employment.
- Business income tax: If you’re operating as a more formal business, such as a C Corporation, your business may have to pay income taxes. Other businesses, like LLCs or sole proprietorships, are pass through entities. That means their income shows up on your personal income taxes and gets taxed there. Check state laws to see if your state has special rules here.
- Excise tax: Your state may charge this tax for the sale of certain goods or services.
- Employment taxes: If you have people working for your business, you have to pay their payroll taxes, such as Social Security, Medicare, and unemployment insurance.
Also, think about quarterly estimated taxes. You might have to make quarterly payments based on your expected profit and end-of-year tax liability.
More information here:
Determine Due Dates
April 15 is Tax Day for most people, but that might not be true if you’re running a small business.
Quarterly estimated tax payments are due four times each year, on the 15th of April, June, September, and January. If you set your business up as an S Corporation, you have to file your S Corp taxes by March 15, which is earlier than the due date for normal taxes. Just like you can file an extension on your personal taxes (until October 15), you can also file an extension on your partnership or corporation taxes (until September 15).
Each state may have different due dates for state business taxes, so it’s important to check local regulations as well. Putting all this information in a calendar can be a great way to keep track of the different deadlines.
Gather Tax Forms (or Choose Tax Preparation Software)
Before you can fill out your tax forms, you have to know what forms you need and gather them. The forms you’ll use will vary based on how you’ve structured your company.
- Form 1040: This is for your individual tax return. Everyone needs this one.
- Schedule C: Use this form as part of your Form 1040 if your business is a sole proprietorship.
- Form 1065: Partnerships use this form.
- Form 1120/1120-S: This form is for C and S Corporations.
- 1099-MISC: This form may be issued to you by your clients if you are self-employed. Your business may also need to issue them to anyone you paid $600+ during the year.
- Schedule K-1: This form is provided to you by pass-through entities like S Corporations. If you are preparing business tax returns for your partnership corporation, you will provide these to the partners or shareholders.
- Form 720: This form is for reporting excise taxes.
- W-2, W-3: These forms must be filed for your employees.
Also, check with your state department of revenue to figure out the forms you’ll need to file state taxes.
More information here:
Collect Your Business Information
The last thing that you want to be doing when filling out your taxes is trawling through filing cabinets or searching your computer for a document or spreadsheet. Getting everything you need in one place before you actually need it can help you fly through the tax preparation process.
Make sure to get all these documents ready. To make your life easy, try to keep these documents together throughout the year so you’re not hunting when tax time starts. Here's what you should be gathering.
- Business formation documents, including Federal Tax IDs
- Returns from previous years (up to three years)
- Accounting ledgers
- Financial statements showing your balance sheet and income, such as
- Bank statements
- Credit card statements
- Invoices paid and received
- Mileage logs if you use a company vehicle
- Documentation of business expenses, such as
- Receipts for business expenses
- Paid bills for things like rent and utilities
- Advertising costs
- Travel for business
- Professional fees, including accounting, legal, and other costs
- Employee tax documents, if applicable, such as
- Employee W-9s
- Employee W-2s
- 1099s for contractors
- Payroll reports
- Tax deductions withheld
- Documents supporting home office deductions
Send Out Required Documents
Each year, your business may have to send out certain documents. For example, if you have employees, you’ll need to send a W-2 to each employee. This form includes information on their earnings and withheld taxes so they can file their own taxes.
If you hired contractors, you’ll need to send them 1099-MISC forms.
Confirm Receipt of Documents
Your company may receive information returns from other companies that you’ve done business with. For example, you should receive documents regarding things like:
- Cancellation of debts owed
- Payment card transactions (and related fees)
- Rents or mortgage interest paid
- Insurance premiums paid on behalf of certain individuals
If you’re expecting any of these types of documents, make sure you receive them. If you don’t, reach out to the group that should be sending the form and make sure it files the form properly.
Take Advantage of Any Tax Saving Opportunities
Before you file your taxes, you have one last opportunity to use any tax reduction strategies that apply to you.
One easy one to use is to open and contribute to a small business retirement plan. Even if you’re self-employed and working as a sole proprietor, you can open a SEP IRA or (better yet) an individual 401(k). You can contribute as much as $61,000 [in 2022] or 25% of your company’s net income (whichever is less) to a SEP IRA and avoid taxes on the contributed amount, which can be a big saving (in 2023, that limit should rise to $66,000).
If you work from home, you may also be eligible for a home office deduction. The simplified version is $5 per square foot of up to 300 square feet used regularly and exclusively by the business. Your business can also deduct expenses—such as travel for conferences, advertising costs, or depreciation of assets and equipment your company owns.
You can also earn tax credits for things like contributing to your employees’ health insurance costs or using electric vehicles for your business. Every deduction or credit you find can mean more money in your pocket or reinvested in your practice.
More information here:
File Your Taxes
Once you get all the information together, it’s time to get down to the nitty-gritty details, fill out your tax forms, and send them in. While you can do this with a pen and paper, you’ll probably be better off using small business tax filing software or working with a professional to prepare and file your taxes. Working with a professional is especially useful for new and growing businesses, because they can help you identify opportunities to reduce your tax burden.
Very few people enjoy filing their taxes. While it may never be fun, taking steps to make the process easy can make the process much less painful for you. By following this checklist, you can make tax preparation for your company easy.
If you need help with tax preparation or you’re looking for tips on the best tax strategies, hire a WCI-vetted professional to help you figure it out.
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