Before you can start a business, you need to be familiar with business tax laws. Here’s a introduction to how to do business taxes.
Approximately one-third of small business owners believe that they overpay taxes each year. Do you want to make sure you’re not part of this group?
It doesn’t matter if you’re a new business owner or a seasoned pro. Filing business taxes can be pretty overwhelming, especially if you have a tendency to leave things until the last minute (as most of us do).
If you’re not sure how to do business taxes, or if you just want some tips to make filing easier, you’ve come to the right place.
Read on to learn more about the basics of business taxes and what you need to know to avoid being penalized.
Common Business Tax Mistakes
A lot of business owners make mistakes when filing their taxes.
The following are some of the most common tax filing mistakes business owners make:
- Over- or under-reporting income
- Not separating business and personal expenses
- Not claiming all available tax deductions
- Mistakes regarding employee work status (for example, W-2 vs. 1099 employees)
- Late filing and late payments
- Neglecting to pay quarterly taxes
Even though they’re often unintentional, these mistakes can still increase the likelihood that you’ll be audited and could even lead to some serious penalties.
How to Do Business Taxes: The Basics
As you can see, there’s a lot that can go wrong when you’re trying to file your business taxes.
If you want to avoid the mistakes listed above and ensure you’re not overpaying, make sure you follow these guidelines on how to do business taxes correctly:
Gather Your Records
No matter what kind of business you run or how your business is registered (sole proprietor, LLC, etc.), the first step you need to take is to gather all your records from the past year. Ideally, all of these records will be kept in one place and will be neatly organized.
The following are some of the records you’ll need:
- Information regarding all sources of income for your business
- Inventory reports
- Profit and loss statements
- Travel details and receipts
- Information regarding home office expenses (utilities, supplies, etc.)
- Information regarding business assets (vehicles, real estate, etc.)
For many business owners, gathering this information is half the battle when it comes to filing taxes. Make life easier for yourself in the future by setting up an organizational system that allows you to find these documents more quickly.
Find the Right Tax Forms
Next, you’ll need to locate the correct tax forms for your business.
The specific forms you use will vary depending on the way you operate your business.
For example, if you use a sole proprietorship, you will need to use a Schedule C form. The same goes for businesses that are run as LLCs. For businesses that run as a corporation, you’ll need a separate form known as Form 1120.
If you are unsure of which form to use, you may want to use a tax preparation software. These programs ask you a few simple questions to help you figure out the appropriate forms for your business.
Fill Them Out
Now, it’s time to fill out the forms. You can definitely use paper forms, but it’s often easier to file online.
Filing online allows you to correct mistakes more easily. Many tax preparation software programs also alert you if you’ve missed a section during the process.
You’re less likely to make mistakes that could cost your business a lot of money if you take the online approach.
Be Aware of Deadlines
Finally, make sure you’re aware of the filing deadlines. For most taxpayers (business and personal), the filing deadline is April 15.
As a business owner, though, you also need to be aware of the deadlines for quarterly tax payments. Quarterly tax payments must be paid on the following dates:
- April 18 for first quarter payments
- June 15 for second quarter payments
- September 17 for third quarter payments
- January 15 for fourth quarter payments
If you fail to pay quarterly taxes, your business could be penalized and have to pay additional fees when you file for the year.
Bonus Tax Tips for New Business Owners
Those are the basics of filing business taxes. It seems pretty straightforward, right? It definitely can be, but it’s not for most business owners.
Here are some additional tips for business owners that will help them make sure they’re paying the minimum amount and simplifying the process as much as possible:
- Use a tax filing software or hire a professional to help you avoid mistakes when filing
- Research all potential deductions so you know what you can claim
- Prepare for tax season early (don’t wait until the day before the deadline)
- Lower your bill with a tax-deferred retirement plan
- Utilize Section 179 to deduct equipment costs
- Keep your records neat and organized to avoid a frantic search at the beginning of April
- Make use of apps that help you track travel expenses and other deductible costs
- Find out if you’re eligible for penalty relief for mistakes you’ve made in the past (such as neglecting to make quarterly payments or filing late)
Make sure you file your taxes on time, too. Even if you cannot afford to pay your full tax bill, you will face more penalties for filing late. File on time, pay what you can, and talk to your accountant about your options for making up the rest of what you owe.
Learn More About Business Taxes Today
If you were unsure of how to do business taxes, hopefully, you’re feeling a bit more confident now in your ability to file and file correctly.
Keep these tips in mind and you’ll have a much easier time filing your taxes and avoiding tax penalties.
Do you want to learn more about business taxes? Do you want to make sure you’re handling your business’s finances appropriately?
Proper financial management can make tax season much easier for your business, so it pays to learn the ropes early.
If you’re not sure where to begin when it comes to learning about business financial management, start with this article on accounting basics for startups.