If you’re a new business owner, April’s approach can bring a lot of anxiety. However, filing business taxes is a fairly simple process. Here’s a step-by-step guide to filing your first business tax return.
1. Leave plenty of time. Many tax preparers get too busy to take additional clients late in the season. Even if you’re planning to do the return yourself, start on your taxes early in case you need to call in a pro.
2. Gather documentation. Hopefully you’ve been tracking your business sales and expenses. Assemble your receipts, payroll log, invoices, deposit slips, charge statements, canceled checks, account statements, and other business paperwork. If you paid contract workers, you should have Form 1099s as well. If you plan to deduct business travel, you’ll need receipts and a mileage log if you drove a car for business. See these IRS guidelines to find out what records you need to keep for your business.
3. Learn about taxes for your business type. Visit IRS.gov to learn about your federal tax responsibilities. For instance, if you own a sole proprietorship or are part owner of a limited liability corporation (LLC), you’ll file a Schedule C on your personal tax return and include your business income and expenses there. Most other business forms, such as partnerships and corporations, file a separate tax return. Check the IRS’s “Business Structures” page to see which tax form you need for your business type. You can download the forms you need right off the site. You’ll also have to learn about your state income tax responsibilities. Your state tax board or department of revenue should have information on business tax filing requirements. Some states also require payment of a business and occupation, or B&O, tax.
4. Clean up your paperwork. Many businesses open without officially registering with their state or the IRS. If you haven’t already, obtain a state business license and consider getting a federal Employer Identification Number. You may also require local licensing in your county or city.
5. Learn about deductions. Tax laws change constantly, so make sure you’re aware of every possible deduction your business can take. For instance, depreciation rules have changed in the past few years, making it possible for businesses to write off the cost of major purchases more quickly. Pay particular attention to any tax credits offered, such as those for buying fuel-efficient company vehicles. Note that the list of vehicles that qualify for programs such as these changes annually. Remember, a tax credit is better than a deduction as it reduces your tax dollar-for-dollar. A $5,000 tax credit means you will shave $5,000 off the amount you owe.
6. Fill out forms. Whether you use a software program such as TurboTax or hire a professional tax preparer, make sure you meet the appropriate deadlines for filing. Consider e-filing, which has several advantages: You get a receipt acknowledgement from the IRS, and e-file refunds come much faster than from paper returns.
7. Plan for the future. If your business income is substantial, you may need to make quarterly estimated tax payments. If so, your software program or tax preparer should be able to help you estimate the amount you need to pay each quarter to avoid future tax penalties. A tax professional can also help you look at the year ahead and consider how major purchases and other business changes might affect your taxes for the coming year. Planning your business moves carefully with input from your tax pro can help you maximize your tax savings in the future.
To stay on top of tax changes that may affect your business, consider subscribing to the IRS’s e-mail newsletter, E-News for Small Businesses.