Running a business is challenging, and business owners often have to wear many hats. And although it’s human nature to put off the most difficult tasks—that would be a huge mistake when it comes to accounting. Proper small business accounting is a marathon, not a sprint and it requires daily practice and know-how. And although there is no replacement for a highly trained professional, knowing the basics can make sure your business is on the right path. Here are some things to keep in mind when filing taxes for your business:
1. It’s completely normal to extend
The IRS does not take an extension as a hint that your returns are fraudulent. Extending the date of the return is a very normal, common practice in business.There are many benefits to extending the return: mainly, it gives your company more time to get the previous year organized. Speak with your tax filer or submit this form to the IRS. Please note however, that extension of the return does not allow you to extend that payment date if you owe the IRS money. If you can’t pay, file the extension anyway. It will be more beneficial to file the extension and not pay than to do neither.
2. Document everything
If you want to properly keep your books, you’re going to have to properly document your expenses. This means keeping receipts, mileage records, and expense reports. Not only do you need to keep track of spending, you’ll need to organize purchases in a way that makes sense. Standard practice includes categorization, alphabetization, and organizing it so revenue is on top and expenses on bottom.
3. Business structure matters
Choosing how your business operates (i.e. LLC, S Corp, C Corp) has a big impact on how you file for taxes and qualify for exemptions. For example, by election, the ever-so flexible LLC can be taxed as an S corporation by filing Form 2553 or as a C corporation by filing form 8832. Each structure has its pros and cons, and business owners would be well advised to be knowledgeable on each structure and how they are taxed. Speaking to a tax professional about operational setup is also highly advised.
4. Take advantage of appreciable stock contributions
Donating to others is never a bad thing. But from a business standpoint—some forms of charity are definitely better than others. TurboTax points out that by donating appreciable stocks instead of standard monetary donations—business owners can deduct the current worth of the stock rather than its original price. This means a $20 stock purchase that is later worth $40 would give you a complete ROI with an additional $20 in profit.
5. Estimated tax payment should be made throughout the year
The IRS, like us, wants their money now. The IRS does not want to wait until April 15th to collect taxes. There are rules that require companies and employees to pay taxes throughout the year. If you are employed, you know that part of your money is withheld from each paycheck. As a business owner, all your profits are subject to taxation. This estimated tax is paid quarterly. You could be subject to penalties if you don’t pay taxes every quarter. If your company did not earn any profits, you don’t need to submit estimated taxes. If you your company is an S corp, you could increase the withholding amount on your own paychecks and this could satisfy the estimated tax payment needs.
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