As a small business owner, it’s likely to be one of your least favorite times – tax filing season. But it’s a necessary part of staying in business.
Ideally, you have spent the year preparing for your taxes, but that’s not always achievable. So, here are a few preparation tips whether you have everything almost ready to go or are starting from scratch.
Receipts, Receipts, Receipts
This may be the most important tip – pull together your receipts and records now from 2016. It’s really important in dealing with the Internal Revenue Service (IRS) and also ensuring you are taking advantage of every allowable deduction. You need to do this whether you are doing the taxes yourself or hiring a professional.
Storing these receipts digitally makes it a lot easier to organize your documentation. You can use mobile apps like ShoeBoxed or Neat., where you can mail in receipts for bulk scanning or use your mobile device to capture receipts on the go. You can also use your own scanner and save money by doing it yourself, but if you have a lot of receipts, this can be very time consuming.
No matter if your documentation is all paper or digital files, once you’ve pulled everything together, separate receipts into folders for each type of expense, such as those for cars, travel and office equipment. It will make it easier for you or your accountant to ensure the information is accurate.
If you used a personal loan for business purposes or a car for both business and personal use, make sure you follow Section 179 guidelines and divide the costs so that you can use the information for your different tax forms.
Keep an Eye on the Calendar
For most small businesses as with individual taxes, the deadline to submit Form 1040 with a Schedule C is April 18 this year since April 15 is a holiday. Those who file in Maine and Massachusetts, get an extra day because of Patriots Day on April 18 — their filings are due on April 19, 2017.
But if your small business is structured differently, the dates may be earlier. For example, with an S corporation, you’ll need to submit Form 1120S for income taxes and pay by March 15. Business owners of S corporations must also send shareholders a Schedule K-1 (Form 1120S) by March 15 so they can calculate their share of income, deductions and credits.
If at all possible, file on time since the IRS imposes a penalty fee of 5 percent a month for filing late, up to a maximum of 25 percent. The total penalty is calculated from the deadline to the date you filed the tax return.
Whether you hire an accountant or do your own taxes, remember to check for any changes in the rules for deductions since there are adjustments every year. Besides helping to find any new deductions for which you are eligible, it can also help you make business decisions throughout the year. For example the Protecting Americans from Tax Hikes (PATH) Act, passed at the end of 2015, lets small business owners deduct money for improvements made to certain commercial properties. PATH also lets employers save by hiring members of particular groups, such as veterans and individuals who are receiving food stamps.
One of the best resources to learn about tax changes is the IRS learning center for small business owners and the self-employed.