It’s that time of year again – tax season. While nobody likes doing their taxes, preparing for tax season can make this process much easier and quicker, allowing you to quickly return to your more profitable activities.
There are several ways to prepare your business for tax season adequately. This list represents some key tax planning aspects that can put you in a good position to file your taxes quickly and accurately.
1. Create a timeline, so you know your tax deadlines.
When you think of taxes, most people know the deadline for individual tax returns is April 15. While many small businesses are also held to this deadline, several other tax-related activities and deadlines exist. Examples include:
- January 31 – Employers must file copies of their employee wages and non-employee compensation forms with the IRS by this date.
- March 15 – This is the filing deadline for partnerships or S-Corporations.
- April 18 – Since April 15 falls on a Saturday in 2023, the standard deadline for filing has been extended to April 18. This deadline applies to individual filers, most businesses, and sole proprietors filing as individuals.
2. Identify the tax forms your business requires.
Depending on how your company is structured and what industry you operate in, you may need specific tax forms. The required forms are different for each business but commonly include the following:
- Form 1040, including Schedule C, which reports business income and expenses.
- Form 1120 – for C-corporations only.
- Form 1120-S – this special form from the IRS is for S-corporations only.
- Form 1065, which is required for partnerships. Individual partner information is reported on Schedule K-1.
3. Organize your business records.
To complete the required tax forms, you must reference many business records, particularly those showing earnings and expenses. And while it may be tempting to throw all of these documents in one file throughout the year, this strategy means you have a lot to organize before even starting your taxes. Organization and proper filing/tracking of these financial transactions throughout the year can make your life much easier during tax season. Some of the documents you will want handy when completing your taxes include the following:
- Gross receipts for sales and sales records
- Inventory documentation
- Items or assets removed for personal use
- Returns and allowances
- Bank and savings account balance
- Investment interest
4. Ensure you have sufficient documentation for tax breaks.
Many businesses can take advantage of small business tax breaks, but to do so, you have to prove that you qualify. In most instances, receipts showing you made a qualified business investment or expense are sufficient, but that may only sometimes be the case. When ensuring that you have sufficient tax documentation, consider the following tips.
- Many routine business expenses don’t require much additional documentation, including overhead costs, insurance, utility expenses, professional fees, and supplies.
- Some tax breaks require additional documentation, such as the home office deduction, transportation, meals and entertainment, and small business health insurance expenses.
- It may be worthwhile to check with a professional to ensure you leverage all applicable tax breaks for your business.
5. Request an extension if you think you will need it.
Failing to file by the deadline can be a big deal, but not if you complete the proper forms to request an extension. This process allows you to complete your required documentation and complete your taxes. And it’s worthwhile if the extra time will ensure you can provide a full and complete return. But it’s vital that you remember that you must file for an extension before the original due date, and you still have to pay your faxes on time, even if you receive an extension. In addition, the extension is only for filing the return. Extensions vary by the type of business entity, but they tend to be automatic once you file for them. You may file for subsequent extensions, but they are more difficult to receive.
6. Start planning for next year.
As you can see, many of the best actions you can take to prepare for tax season are related to having sound processes and procedures in place throughout the year. One of the best ways to wrap up any tax season is to reflect on how you want the upcoming year to go, including identifying additional strategies that may qualify you for more tax breaks or reduce the likelihood of having to pay tax penalties. These strategies may include working with a tax planning specialist or CPA and contributing to a Roth IRA using post-tax income.
Taxes are not fun. And a failure to complete them accurately can cost your business big time. To learn more about professional tax services, contact Parker Business Consulting today.
Parker Business Consulting & Accounting, P.C. is a unique firm with more than a combined 75 years of experience in private industry, coupled with a strong background in public accounting. This combination enables us to provide valuable assistance based on direct experience with many of our clients’ same issues.