At the beginning of each year, businesses begin to look at what they spent the year before, gather up receipts, approve budgets for the year, and start to get ready to file their taxes. Prepping your small business’ taxes early can be a long drawn-out process but gathering and preparing everything early on ensures that you and your employees are taken care of completely before April 15th.
Organize all of your records
As a business, all of your records should already be organized. If they aren’t, now is the time to get everything organized and filed. Gather all receipts, invoices, pay stubs, and previous tax returns and forms for this season’s taxes. Throughout the year, you should be using programs like QuickBooks bookkeeping software to help you keep expenses recorded and organized, which makes getting ready for tax season much easier. You can print out these files to keep with the rest of your physical documents or keep them as electronic files. If you do want electronic files, you can scan your other documents and then keep them in the same file with your QuickBooks report.
Get the correct forms
Getting the correct forms for your business’s taxes is important and must be sent out in a timely manner. For regular employees, you will need to send out W-2 forms and for contractors you will need to send out 1099 forms. All forms need to be sent out to the correct person, state and local tax offices, and the Social Security Administration by January 31st. If you are the small business owner, you will need to get the correct forms for you to file your personal taxes as Self-Employed. Forms for business owners and/or partners, 1040 forms, are available starting in January and need to be filed by April 15th.
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Research the changes to this year’s tax season
Remember that part of the deal that was made to fix the fiscal cliff were changes to our taxes, including for small businesses. The payroll tax cut that was put in place back in 2011 has expired leading to a 2% increase in Social Security taxes; meaning there is now a 6.2% Social Security Tax on the income of your employees. This change also effects people who self-employed. Another change that affects small business owners is the start-up deduction has been reduced from $10,000 to $5,000. These are just a few changes that have been made to business tax laws. Make sure you do some research ahead of time on these numbers so you know how to properly file your taxes.
Decide if you should use a professional or do your own taxes
It isn’t impossible for you to file your small business’s taxes, but you want to make sure you are aware of the different tax laws and procedures. Knowing these changes and staying on top of paperwork will make the process of filing your own taxes much easier. However, there is nothing wrong with getting help from a professional. Companies like H&R Block will work with you so you understand your business’s tax return and will even help you if you get audited.
Be prepared to get audited
Whether you filed your taxes yourself or went through a professional, there is always a chance you will be audited. The IRS audits returns don’t quite add up or may have certain information on them that registers as a red flag, even if nothing is actually wrong. Since the IRS can look at tax returns from up to 6 years ago, they recommend that you keep all of your tax records up to at least the last 3 years on you. Be sure to keep all your physical records in a safe place, and back up electronic files.
Do your research as much as you can before filing taxes and it will help you determine if you have any deductions you may qualify for, if you should get professional help, or if there are any extra forms you may need. The sooner you start, the quicker you can get organized and take care of taxes well before their due date!