small business tax prep tips

Small Business Tax Prep Tips: What to Do Before the Filing Deadline

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Financial constraints due to tight budgets and cashflow issues usually top the list of major challenges small companies face.

The last thing these business owners need is a failure-to-file penalty imposed by the Internal Revenue Service (IRS).

These penalties start at 5% and can accrue to 25% of all taxes due.

Timely tax preparation and even filing early can help you avoid this.

It reduces stress and gives you more time to deal with unforeseen issues.

Effective tax planning also allows you to capitalize on credits and deductions that can lower your tax bill.

At the end of every year, three and a half months might seem like a lot of time.

However, the April 15 tax deadline approaches quickly.

The following small business tax prep tips can help you streamline your accounts to ensure you file before this crucial date.

Understanding Your Business Structure

The U.S. Small Business Administration advises prospective owners to choose their business structure carefully, as it can affect how much taxes they pay.

It also determines personal liability, the paperwork you need to file, and can affect your ability to raise money.

The most common types of business entities are:

  • Sole proprietorship – a single person owns and operates the entire business and is personally liable for all business debts and obligations
  • Partnership – two or more people own or operate the business and share responsibilities and profits
  • Corporation – a legal entity that is separate from its owners and is created to operate for profit
  • S Corporation –  a business entity that passes its income, losses, deductions, and credits to its shareholders to avoid double taxation
  • Limited Liability Company (LLC) – prevents owners from being personally liable for the company’s debts or financial losses

The type of ownership, liability, and taxes will vary for each.

Small Business Tax Prep Tips

A tax filing checklist could make what may seem like a daunting exercise less stressful.

The first step of small business tax preparation should be gathering the following relevant financial records:

  • Last year’s tax returns
  • Financial statements
  • Receipts for expenses
  • Payroll records including W-2s and 1099s
  • Bank statements

Accurate records housed in a central location are vital for smooth filing.

Utilizing accounting software facilitates automation which provides quick access to records and facilitates easier tax preparation and compliance.

Identify Tax Deductions and Credits

Proper record-keeping can also maximize deductions and minimize tax liability.

You can benefit from several small business tax deductions.

Research those that are available for your business which may include:

  • Business expenses including travel
  • Home office deductions
  • Vehicle expenses
  • Equipment depreciation

Claiming all eligible deductions can significantly reduce your taxable income.

Choose the Right Tax Forms

Business structure plays a significant role when filing taxes as there are specific tax forms you’ll need to file depending on the business type.

Identify the correct IRS forms based on your business structure.

  • Sole proprietors use Schedule C (Form 1040 or 1040-SR)
  • Partnerships file as an entity using Form 1065, U.S. Return of Partnership Income
  • Corporations may need Form 1120 or Form 1120S
  • S Corporations also use Form 1120-S or Form 1120-S (Sch. K-1)
  • Limited Liability Companies have specific tax forms based on their classification

Knowing which forms to file helps avoid penalties and ensures compliance.

You may also need additional forms based on any specific deductions or credits claimed.

Plan for Deadlines

According to USA Today, April 15 has been designated Tax Day since 1955.

This date changes if it falls on a weekend or holiday.

However, depending on your business type your filing deadline might be earlier.

April 15 is the standard filing date for sole proprietorships and corporations.

The annual deadline for partnerships, S Corporations, and Limited Liability Companies is March 15.

Since this date falls on a Saturday, this year’s deadline is March 17.

Keeping track of these dates is essential to avoid late fees.

Creating a calendar with important dates is one of many helpful small business tax prep tips that can ensure timely filing.

What happens if, despite this, you’re unable to make the deadline?

You can request a business tax extension.

Depending on the business type, this must be done by the deadlines outlined above.

Businesses are usually given a six-month extension.

Seek Professional Help

Although Tax Day is once a year, it’s still hard to imagine following all the tips outlined in this article while dealing with the daily tasks involved in running a business.

Tax preparation requires accuracy.

Being detail-oriented could be challenging while managing finances, engaging with customers, fulfilling orders, and all the other commitments involved with business ownership.

Hiring a business tax consulting specialist can lessen the work and reduce stress.

It’s also advisable to hire an accountant or tax advisor if you:

  • Are uncertain about any aspect of tax preparation
  • Don’t have a finance team or in-house accountant
  • Are behind on your tax preparation
  • Think you may be audited
  • Have changed or will be changing your business structure

Consulting a tax professional can save time and prevent costly mistakes.

They also:

  • Have expertise in navigating complex tax laws and maximizing deductions
  • Can provide insights into tax strategies that align with your business goals
  • Can review your previous returns and amend them for potential tax credits
  • Reduce the risk of being audited

Tax professionals are great during tax season but can also help you year-round.

They can provide proactive tax planning and help minimize your costs.

Effective Preparation and Planning to Meet Tax Deadlines

Thoroughly preparing before your tax filing deadline can ensure greater accuracy and help you avoid penalties.

It provides time to deal with issues that may occur during the filing process.

Filing early also gives you more time to pay, and in the case of a refund ensures you receive it faster.

The small business tax prep tips outlined above can help facilitate this.

However, you’ll enjoy even greater benefits if you hire a tax professional.

Master Accounting and Tax Service, LLC can provide quality, cost-effective accounting services, including tax preparation.

We have over 20 years of tax experience that we conveniently offer clients via an online platform.

Contact us to ensure you meet your filing deadline so you can enjoy a stress-free tax season.

Looking for Tax Accounting Services in Scottsdale, AZ?
Connect with Master Accounting and Tax Service for expert tax accounting solutions tailored to your needs. With over 20 years of experience, our dedicated team ensures integrity, affordability, and financial clarity for individuals and businesses across Scottsdale.
Call (480) 456-4999 or contact us today to get started!