Tax season can be a daunting time for small business owners. It can be easy to feel overwhelmed between gathering all of your paperwork and trying to decipher complex tax laws. However, you can make the process much simpler and less stressful by preparing ahead of time.
In this blog post, we’ll be talking about what to do in the months leading up to tax season, how to file your taxes as a small business owner, and what deductions and credits are available to you. Let’s get started!
What to Do in the Months Leading up to Tax Season
Here are a few tips on how to get ready for tax season ahead of time:
Make a Tax Calendar
One of the best ways to stay organized during tax season is to create a tax calendar. This will help you keep track of important deadlines and ensure that you don’t miss any important filing dates.
A good rule of thumb is to start preparing for taxes about three months before the deadline. That way, you have plenty of time to gather your documents and complete your return accurately.
Gather Your Documents
You will need to have certain documents on hand to file your taxes correctly. These include receipts, invoices, bank statements, and W-2s or 1099s. It’s a good idea to organize these documents into folders or electronic files so that they are easy to find when you need them. You can even generate your W-2s using our online generator.
If you plan on hiring a professional accountant to help with your return, make sure to provide them with all of the relevant documents well in advance.
Familiarize Yourself With the Latest Tax Laws
Tax laws can be pretty complex, and it’s crucial to stay up-to-date on any changes that may affect your business. The IRS offers a variety of resources to help small business owners understand the tax code. This includes online courses, webinars, and podcasts, among other things. You can also consult with an accountant or tax specialist to get advice specific to your business.
Consider Using a Tax Preparation Service
If you don’t feel comfortable preparing your taxes, many professional tax preparation services can help you out. These services can be especially helpful for businesses with complicated tax returns. They will guide you through the process step-by-step and ensure that everything is filed correctly.
Calculate Your Profits and Losses From the Past Year
Another crucial step in getting ready for tax season is calculating your profits and losses from the past year. This will help you figure out how much money you actually made or lost during that period.
To calculate your business’s net income or loss for the year, simply add up your total revenue and subtract your total expenses. When calculating your profits and losses, be sure to include all income, which can be seen in your form 1099, and deductible expenses.
File an Extension if Needed
Small business owners may have to start preparing for the 2022 tax season as early as now. One of the things you need to do is file an extension if required. If you cannot file your taxes by the April deadline, you can file for an extension using Form 4868. Keep in mind that any taxes owed still need to be paid by the original due date.
Deductions And Credits Available To Small Business Owners
In addition to filing your taxes correctly, several deductions and credits are also available to small business owners. Here are some of the most common ones:
Home Office Deduction
Those who work from home may be able to claim a home office deduction on their taxes. This allows you to deduct a portion of your housing costs (including mortgage interest, property taxes, and home insurance) as well as your business expenses.
Business Expense Deduction
You can deduct any legitimate business expenses from your taxes. This includes things like office supplies, advertising costs, travel expenses, and more.
The Self-Employment Tax Deduction
If you owe self-employment taxes, you may be able to deduct them from your taxable income. This reduces the amount of tax you owe on your profits.
Other several credits are also available to small businesses, including the research and development credit and the work opportunity credit. Be sure to research all of the credits available to you so that you can claim them on your return.
How To File Your Taxes As A Small Business Owner:
Once you’ve gathered all of your necessary documents, it’s time to file your taxes. Here are the steps you’ll need to take:
- Choose the correct form: There are a few different forms that you can use to file your taxes as a small business owner. The most common forms are Form 1040 and Schedule C.
- Enter your business income and expense: This information can be found on Schedule C. You will also need to calculate your net profit or loss for the year.
- Report any self-employment taxes you owe: If you made more than $400 in self-employment income, you must pay self-employment taxes.
- Sign and send in your return: Once you’ve completed the form, make sure to sign it and send it to the IRS.
The tax season is always a time of reckoning for businesses, and small business owners need to be prepared for it. The good news is that there are plenty of steps you can take now to make the process easier come 2022 and help you pay taxes more accurately.