Did you know the IRS charges a penalty of 5% of the unpaid taxes for each month or part of a month your return is late?
That's no small amount. So, don't procrastinate! You will literally pay for it.
Listed here are four things you need about filing taxes for your business in 2019. Follow them, and tax season will be a breeze for you (or at least not as big of a headache).
1. Know what form you'll need
It all depends on if what you'll be filing as:
- If you're a sole proprietor, or someone who owns an unincorporated business by yourself, attach a Schedule C form to your personal income tax return.
- If you're a limited liability company (LLC) that's a partnership, fill out Form 1065 to report income, expenses, losses; if you're an LLC that's a corporation, fill out Form 1120.
- If you're a corporation, fill out Form 1120 (same as LLC that's a corporation).
- If you're an S corporation, fill out Form 1120S.
For your reference, understand an LLC is a business structure where owners are called members. It combines the pass-through taxation of a partnership with the limited liability of a corporation.
Also, the main tax difference between an S corporation with a corporation is that S corporations pass corporate income, losses, deductions, and credits to shareholders. This avoids double taxation, and makes S corporations similar to LLCs when it comes to taxes.
Keep that info in mind if you're thinking about changing the type of business or establishing your business.
2. It's all about calculating revenue against expenses
Ultimately, what you pay in taxes depends on your total profits, which can be simplified to be revenue minus expenses. What you need to produce is an income statement. This should clearly detail all your revenues and expenses.
Revenue includes all your sales, as well as bank account interest, capital gains, returns and allowances, and other unclassified income.
Expenses, as a guide in The Entrepreneur notes, includes labor, office rent, equipment purchases, automobile expenses, utilities, and more.
Given that there are a lot of things involved with filing taxes, the chances of paying more than you should in business taxes are high. For instance, you could leave out legitimate business expenses when filing taxes, and that means you'll pay more than you should as your profits will seem higher.
To avoid this possibility, consider hiring a good CPA so that you file taxes in the most efficient and effective manner possible. The American Institute of Certified Public Accountants is a great place to search for high-quality CPAs.
3. Having a checklist makes everything easier
You can make the tax filing process go much faster if you have all the info you need on hand. Consult this checklist:
- Income statement: If you're not already, start keeping records of all gross receipts and sales
- Cost of goods sold (if applicable): This includes the cost of the materials along with labor, inventory and distribution expenses.
- List of expenses: From legal services to insurance, include any money spent to support the company's operations. Don't forget about things like advertising, transportation, airfare, meals while traveling, and commissions paid.
- Payroll documents: This should include payments made to contract workers and freelancers.
- Last year's business tax return: It's a great reference, too (if you have it).
- Bank and credit card statements: This will help track the money that's coming in and going out.
- Depreciation schedule: This covers the depreciation, or loss in value, of your company's long-term assets, like equipment, buildings, and office furniture.
- Asset purchases: Have receipts on hand if you've bought new equipment, vehicles, computers, etc.
4. Use all the resources available to you
The IRS has a lot of resources available on their tax center page. Use that as a reference. There's also plenty of info available with companies like TurboTax.
Additionally, small business tax software like QuickBooks and inDinero can automate many of those time-consuming accounting tasks. It's worth the investment when you consider the time you save and how you eliminate the potential for errors that happen when you manually record financial information.
The point is this: Small business owners have to wear many hats, and one of them is accountant. To make that role easier, utilize all the resources available. And, if you can, hire a CPA to help out.
Making tax season go smoothly
What perhaps is most helpful is good record-keeping processes. This will eliminate confusion and having to hunt down potentially lost documents and information.
In the end, tax season isn't something that will excite your team, but if you make it the company norm to maintain clear and accurate financial data, filing taxes will be much easier this year. And your team can get back to what matters most: Building a sustainable, successful business.