It’s Tax Time, Business Owners: Are You Ready to File?
For new business owners, and even experienced ones, tax season can be stressful and confusing. To help you weather the financial recordkeeping storm, we’ve talked with certified business tax prep pros and put together the following list of tips and to-dos.
Start Early (If You Can)
Ideally, your tax prep begins with the first of the year. But if you’re reading this and haven’t started pulling your tax information together, don’t panic. The key to a successful file comes down to 2 factors:
- Good bookkeeping: if you put garbage in your books, that’s what you’ll get out of them at tax time, leading to inaccurate tax returns and grumpy phone calls from the IRS. Get organized, keeping your business income and expenses separate from personal income and expenses.
- Know your due date: it’s an expensive proposition to file an extension, so be aware of your tax file due date (it’s different depending on type of businesses). If you’re not sure, TurboTax has put together a handy explanation with this year’s deadlines.
Pull Together Your Paperwork
As with due dates, the paperwork required to fill out your taxes might vary given your type of business and factors like how many employees you have and whether you offer health insurance.
However, there are some common documents every business will need:
- Records of all business income and expenses should be collected throughout the year. Scan receipts to preserve the information as they tend to fade and can be easily misplaced or torn.
- If business vehicles are purchased, make sure and keep the bills of sale to determine total cost, financing terms, etc.
- Mileage logs should also be kept in order to claim a deduction for business use of vehicles.
Make sure scanned documents are backed up regularly in case of computer failure. Another best practice is to keep business records available for a minimum of 5 years.
Seek Out Resources
Tax filing for small businesses is much more complex than it is for most individuals, and it’s worth establishing a relationship with a CPA or other tax professional early in the process of starting a new business.
For example, did you know that self-employment income is taxed at a very high rate because profits are subject to a roughly 15% self-employment tax comprised of Social Security and Medicare taxes? In addition, the income is subject to federal and state income taxes.
For a taxpayer in the 15% federal bracket, total taxes paid could be as high as 35% (2015 rate)!
It is also important to plan for tax liability, and in many cases, quarterly estimated tax payments are required. A CPA or other tax professional can help you understand the growing complexity of these tax strategies and the rules.
However, if you’re set on doing it yourself, be sure you check out the IRS’ Business Tax Information website.
Changes Come Up
There are new tax laws and changes to be aware of each year when filing. In 2015, the “Protecting Americans from Tax Hikes Act” was passed, and two of the important components deal with depreciation methods—Section 179 Deduction and the Section 168(k) 50% Bonus Depreciation.
These allow small businesses to speed up write-offs of certain assets including vehicles, machinery, and equipment.
A few other changes were covered by Entrepreneur.com, but again, here’s where it can be helpful to talk with a pro before starting out to make sure you don’t miss anything.
First Bank and its representatives do not provide tax advice. Each individual’s tax and financial situation is unique. Individuals should consult their tax advisor for advice and information concerning their particular situation.