Contributed by Fundera
Tax season is coming. You wish you could run away. But you have a business to run. And the IRS would find you anyway.
If you think filing taxes for your business is time-consuming and stressful, you’re not alone. Three-quarters of Americans say the tax code is too complex, according to the 2016 WalletHub Tax Fairness Survey.
So how can you make tax season go more smoothly? Here are some simple, helpful tips:
1. Identify the proper tax documents
Having the IRS forms you need is a great first step. Depending on your business type, these are the forms you’ll need to file.
- Corporation: Use Form 1120 to figure income tax liability.
- S Corporation: Fill out Form 1120S. This may sometimes be used by LLCs, too.
- Partnership: File Form 1065 (U.S. Return of Partnership Income). This is typically used by LLCs.
2. Keep records updated and accurate
Procrastination isn’t cool when it comes to taxes. And nothing will waste time and resources like having to catch up on various financial records.
Good records will help not only help you monitor the progress of your business, but also help you prepare your tax returns. As the IRS advises, “Choose any record keeping system suited to your business that clearly shows your income and expenses.” The records you should keep include:
- Gross receipts — the income your business receives.
- Purchases — any items you buy and resell to customers.
- Expenses — costs your business incurs (think employee wages, office rent, insurance premiums, etc.).
- Employment taxes — employment tax records, which the IRS says to keep for at least four years.
- Assets — property used for your business, including furniture and machinery. Since some assets, especially equipment and tech products, depreciate in value, this can lower your taxable income.
The good news is advanced accounting systems and cloud-based software can actually make record keeping much easier. For example, accounting tools like Sage One or QuickBooks can track important financial data for you, making the job easier for you and your records more accurate.
3. Prepare an income statement
With proper record keeping, preparing an income statement becomes easier. You’ll have most of the data you need to crunch the numbers and see how much money you made.
Also known as a “profit and loss statement,” preparing an income statement can seem as simple as calculating revenue versus expenses, but there are much finer details to include. As Seth David, president of Nerd Enterprises, Inc., notes, your income statement should be something that “fairly presents the financial picture of a company in all material respects.”
That’s why you must pay attention to everything that’s considered revenue and everything that’s considered an expense. For example, for revenue, beyond gross receipts, you must include interest earned from loans and bank accounts. Sales returns and allowances should be factored into income as well.
For expenses, beyond common ones like wages and rent, some costs that impact the bottom line could include internet fees, warehousing costs, contractor payments, transportation, and advertising spend.
4. Understand what deductions you can take
Deductions lower your taxable income tremendously. In some cases, they can save you lots of money, so it’s worth taking time to understand what deductions you can take. There are many deductions you may not have considered for your small business.
- Office supplies: Even cleaning supplies are a business expense. After all, if clients see a dirty workplace, it’s going to negatively impact your company.
- Travel: If you go to sunny San Diego to meet a client, you can write off the airfare, hotel, and other related expenses. That’s pretty nice.
- Meals and entertainment: If you’re having lunch or going out for business purposes, you can deduct up to 50 percent. And office snacks or meals for a company picnic are 100 percent deductible.
- Loan interest: Interest you pay on business loans and even personal loans for business purposes can be deducted. Mortgage interest on a property can be deducted as well.
5. Start early
Again, procrastination isn’t cool when it comes to taxes. Unfortunately, nearly one-fifth of all Americans wait until the last few weeks to file taxes.
Your business can’t afford to file taxes under a tight deadline. That will make mistakes or inaccuracies more likely, which can lead to problems with Uncle Sam (you don’t want problems there).
Get a head start by starting the four steps listed above. It will make tax season less stressful — and you’ll be able to focus more on running your business.
Make tax season anxiety-free for your business
These five tips can reduce stress and make filing taxes with the IRS a snap. But if you need help filing your taxes, hire a tax professional. Even if you know your stuff, skilled accountants can help you find even more savings.
Before you know it, April will have come and gone — time for more business growth and success.