5 Things to Do Before Filing Your Business Taxes
Small business owners are brave people: from satisfying customers, to finding hiring great employees, to providing a top notch product or service, small companies come with many things to manage. Bookkeeping and tax accounting are two important tasks on the long list of things to do for small business owners. Whether you’re filing your own taxes or outsourcing them to a professional, here are five things to do before filing your business taxes.
Consider Your Legal Entity
Selecting the right legal entity can have a huge impact on your tax burden during the life of your company. Each type of entity has its own unique benefits and limitations. For example, structuring your business as an S-Corporation will allow you to avoid paying higher corporate taxes since you will only be liable for paying at the shareholder level.
In order to retain an S-Corporation status, the company can have no more than 100 shareholders and only feature a single class of stock. C-Corporations will allow you to deduct more expenses and have hundreds of shareholders. However, if you create a C-Corporation you can expect to taxation to occur at both the corporate level and the shareholder level. This is often referred to as double taxation. It is for these kinds of issues that choosing the right legal entity for your business is vital.
Deductions Are Not as Limited as You Think
Fortunately, for small business owners, there are numerous ways that you can maximize your profits while minimizing your tax liability. Businesses can conduct expenses that are both ordinary and necessary in the course of operations. Offsetting expenses against your income will allow you to reduce your tax burden to a reasonable level.
Startup Expenses Can Be Beneficial
Very often, new startups think that they cannot deduct expenses that were incurred while creating the company. You do not have to miss out on claiming deductions simply because your business was not up and running yet. The IRS will allow you to deduct your startup expenses before you even open your doors. Your accounting professional can help you determine which expenses you can deduct during the first year of your company’s life.
Make Your Quarterly Payments
Once you start your own business and you are self-employed, you are responsible for making quarterly estimated tax payments. While many companies are usually granted leeway during the first year of operations, if you anticipate owing $1,000 or more you must make quarterly payments.
Your accounting professional can use your prior year’s income, tax credits and deductions to provide you with an estimate. If you do not pay at least 90 percent of the taxes you owe prior to filing your tax return, you may be subject to interest and penalties for late payment.
Be Prepared to Pay Self-Employment Taxes
Before you became self-employed, you did not have to calculate self-employment taxes. You simply received your paycheck with your share of the employment taxes already deducted. Now, you are responsible for paying your own portion of Social Security and Medicare taxes as well as the amount that your previous employer paid. Fortunately, you can deduct the employer-equivalent amount of your self-employment tax when you file your tax return. You are allowed to claim half of what you pay in self-employment taxes as a deduction.
Whether you are starting a new business or you have been operating for some time, it is important to stay current with your tax liabilities. An experienced accounting professional can help you with the challenges of meeting your tax requirements. To learn more about outsourcing your bookkeeping or to see how our tax resource center can help your business thrive, visit our website today!
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