Can you believe it’s already tax time? Technically, you have a few months to file your taxes, but it’s easier to get it done sooner rather than later!
But before you start filing your taxes for your business, there are several things you should know.
If you’d like filing your taxes this year to be as painless and stress-free as possible, make sure you follow these steps:
Download the Tax Form You Need
Tax forms can be confusing for business owners. But don’t worry, it’s not actually that complicated once you know what kind of business you have.
If your business is a single-member LLC (just you), then the government treats it as a disregarded entity during tax time. So if you have a single-member LLC or a sole proprietorship, then you’ll need to fill out Schedule C when you file your personal tax return.
On the other hand, if you have a multi-member LLC or a partnership, then you’ll need Form 1065.
Corporations—or LLCs taxed as corporations—require Form 1120. And if you have an S Corporation, then you’ll need Form 1120-S.
You can download these forms directly from the IRS, but we’ll link to them here to make it easier for you:
Form 1065 for 2020 isn’t available yet in its final form, but here is the IRS’ draft to give you an idea of what it will be like.
Gather All Your Business’ Financial Documents
Now that you have the right tax form, it’s time to gather all your financial records for your business from 2020.
That includes your:
EIN or SSN
Income statement
Receipts (all if possible, but especially those over $75)
Invoices
Bank statements
Balance sheet
Credit card statements
Payroll records
Last year’s tax return
Estimated tax payments
Having all these records handy will make it much easier to fill out the tax form. After all, you don’t want to have to keep stopping in the middle of filling out to the form to scramble to find that statement or receipt you need.
Write Down Your Deductions
Now comes the fun part—finding out how much money you can save on your taxes this year!
You probably already know you can deduct your business expenses from your taxable income. But some business owners are confused about what counts as a business expense. They don’t want to deduct something and get in trouble with the IRS for it later.
If that’s a concern you have, here are some common tax deductions for businesses to point you in the right direction.
Home office supplies
Business travel expenses (plane tickets, gas, etc.)
Advertising and marketing
Bank fees and interest
Mortgage interest for office building
Business insurance
Salaries and benefits
Business-related meals and entertainment
Networking fees
Legal fees
Business moving expenses
Rent for office space
Utilities for the office
Office phone and internet
Business education
Some bigger expenses may need to be filed as depreciating assets. What this means is that, instead of deducting the entire cost in one year, you spread it out over however many years you’ll use the asset.
This can be a complicated way to deduct business expenses, so we recommend letting your accountant or CPA handle your depreciation.
Some common assets requiring depreciation are:
Laptops or computers
Office vehicles
Office furniture
Expensive equipment
Other large assets
Meet With Your CPA or Accountant
We highly recommend that you don’t skip this step.
Your CPA or accountant knows more about tax laws than you do and can save you a lot of money each year on your taxes. Plus, a CPA can protect you from accidentally violating tax laws. (Yes, that’s happened to unwitting business owners!)
Not sure who to hire as your CPA? Well, one of the benefits of hiring Foray Business Group as your bookkeeper is that we have great relationships with some of the best CPAs around. And we’d be happy to recommend one to you!
Click here to learn more about our bookkeeping and accounting services.
A Word About Tax Filing Deadlines!
Tax deadlines are not the same for all business entities.
Your individual income tax return is due by April 15, as is Form 1120 for corporations. So if you have a single-member LLC, a sole proprietorship, or a C Corporation, make sure to file your taxes for 2020 before then.
Form 1065 (for partnerships) and Form 1120-S (for S Corporations) are due on March 15, but the extended deadline is Sept. 15.
Need a checklist to quickly refer to while you’re preparing to file your taxes?
You’ll love our short and easy Tax Season Checklist for small business owners. Click here to get your FREE checklist now!