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November 3, 2022

Tax Preparation: A Complete Guide For Small Business.

High angle portrait of female businesswoman counting finances using calculator in small shop, copy space

Taxes are one of those they call a necessary evil, but they don’t have to be a pain. With this complete guide to tax preparation, you can be sure that you’ll have everything you need to file and pay your business taxes.

Small business owners have individual tax returns that differ from those of individuals who work a regular full-time job. Find out more about how to file taxes for a small business.

What Is Small Business Tax?

Small business tax is a tax levied on small businesses by the government. Taxes fund various government programs and services that benefit small businesses. They’re also used to pay for the administration of the tax system itself. The tax is typically imposed on the business’s gross receipts or net income. In most jurisdictions, a small business tax has a different rate from that of a corporate tax.

Do I Need An Accountant?

If you’re thinking about whether you need to hire one to do your small business taxes, the answer is it depends. If your business is simple and you’re comfortable with preparing your own tax return, then you may not need an accountant. 

However, if your business is complex, or you’re not confident in your ability to prepare a tax return, then it may be worth hiring someone to help you. An accountant can ensure that your return is accurate and help you maximize deductions. They can also help you navigate the often-complex tax laws to ensure that you’re in compliance. 

If you’re unsure whether to hire or not, it’s best to speak with one to get their professional opinion and assessment. You may also click here for tax services for your business.

How To File Small Business Taxes

For some, taxes can be a confusing and complicated topic. However, it’s essential to understand the basics of tax preparation to ensure that your business is compliant. 

Here are steps to ensure that your small business taxes are filed correctly and on time:

Step 1: Know Your Tax Due Dates

It’s that time of year again! Time to gather your receipts, pull out your W-2s and 1099s, and get ready to do your taxes. But before you start crunching numbers, you need to know when your taxes are due. 

For most, taxes are due on April 15th. However, if you are self-employed or have certain types of income not subject to withholding, your taxes may be due on June 15th

If you’re unsure when your taxes are due, you can check the IRS website or call them. They’ll be able to give you the date that your taxes are due.

Step 2: Gather Your Business Tax Information

Once you know when your taxes are due, you can gather your business tax information, including your personal and business tax information. Personal tax information includes your Social Security number, birth date, and home address. Business tax information includes your business’s Employer Identification Number (EIN), business income and expenses, and any relevant documents from your business bank account.

If you’re unsure what documents you need, the IRS has a complete list of the records you should keep for your business taxes. Once you have all of your tax information gathered, you’re ready to move on to the next step.

Step 3: Don’t Forget Tax Deductions

One of the most common mistakes in tax preparation is not taking advantage of all the deductions and credits you’re entitled to as a small business owner. It can be tricky, as many different deductions are available, and it can be hard to track them all.

The best way not to miss any deductions is to keep good records of all pertinent documents throughout the year. Keep track of all your business expenses, and make sure you have receipts for everything. It will make it much easier to claim deductions come tax time.

Small business owners must be aware of a few key deductions. These include:

  • Home office deduction (e.g., office supplies, phone & internet expenses, and the like)
  • Office supplies expenses
  • Deductions for business use of your car or work-related travels
  • Business meals expenses
  • Business insurance
  • Business interest and bank fees

Make sure you take advantage of all of these deductions, and you’ll be sure to save money on your taxes.

Step 4: Calculate Your Business Taxes

Now that your business income and expenses are figured out, it’s time to calculate your business taxes. As mentioned above, depending on your business type, you may have to pay different taxes. 

Here are key things to note when calculating your business’s taxes:

  • Your business’s tax liability is based on its taxable income, which is the total income your business earns minus any deductions or exemptions.
  • Your business may need to pay federal, state, and local taxes. The type and amount of taxes you need to pay will vary depending on your business’s location and type of business.
  • You’ll need to file a tax return each year. This return must be filed by the tax deadline, typically on April 15th.
  • To calculate your business’s taxes, you will need to gather all of your financial records for the year, including income statements, receipts, and records of any deductions or exemptions. 
  • Once you have all the information, you must complete a tax return. It’s a form that you file with the government that tells them how much money your business made and what taxes you owe, or you may use a tax calculator to determine your business’s tax liability. You can file your tax return yourself or hire a tax preparer to do the accounting for you. 
  • It’s essential to keep accurate records throughout the year to calculate your taxes easily when it’s time to file.

Step 5: File The Correct Tax Forms

If you’re running a small business, you’ll need to file the correct tax forms to stay compliant with the law. Your business type will determine which forms you need to file. 

There are five main types of taxes that your small business will have to pay: income taxes, estimated taxes, employment taxes, self-employment taxes, and excise taxes. 

  • Income Taxes: All businesses must pay federal income taxes on their profits regardless of structure. If you’re a sole proprietor, you shall report income tax on your personal tax return (Form 1040). If you have a partnership or S corporation, you must file a separate business tax return (Form 1065 or 1120S, respectively). C corporations must also file a separate business tax return (Form 1120). 
  • Estimated Taxes: Estimated taxes are quarterly payments of taxes that you expect to owe for the year. They are paid to the IRS using form 1040-ES in four installments, and the due dates are April 18th, June 15th, September 15th, and January 17th. You may be penalized if you don’t pay your estimated taxes on time. 
  • Employment Taxes: If you have employees, you will be responsible for paying employment taxes. These include Social Security and Medicare taxes (also known as Federal Insurance Contributions Act or FICA taxes), federal unemployment tax (FUTA tax), and state unemployment tax (SUTA tax). 
  • Self-Employment Taxes: If you’re self-employed, you are responsible for paying the entire amount of Social Security and Medicare (FICA) taxes. The current self-employment tax rate of 15.3% is required if your net earnings from self-employment are $400 or more. Net earnings generally include any income from your business minus any business expenses. You’ll need to file a quarterly tax return to pay your self-employment taxes. You can do this by filing Form 1040-ES. 
  • Income Taxes: If your business is a sole proprietorship, partnership, or LLC, you will need to pay income taxes on your business earnings. The tax rate will depend on your personal tax bracket. You must file a business tax return (Form 1040) to report and pay your business income taxes.

Depending on the structure of your business, you may also have to pay other taxes, such as sales, property, and value-added tax. Once you have all the necessary tax forms, you must complete them and submit them to the appropriate government agency. 

The process of filing taxes can be complicated, so you must seek professional help if you’re unsure how to proceed. A tax preparer or accountant can help you ensure that you’re filing the correct small business tax forms.

Step 6: Check Everything With Your Accountant

Once you’ve completed your tax return, it’s crucial to have your accountant review it for accuracy. There are often many complex tax rules that you may not be aware of. By checking your return with your accountant, you can be sure you’re taking advantage of all the deductions and credits you’re entitled to. 

After your accountant has reviewed your return, they will likely have a few suggestions on how you can improve your tax situation for next year. Be sure to take their advice to heart, as they can help make the process easier in the future. 

Final Thoughts

Now that you have a complete guide to small business tax preparation, you should be able to complete your taxes easily. Be sure to review all the steps with your accountant to ensure that you take all the necessary steps. With a bit of careful planning and preparation, you can save a significant amount of money on your taxes.