How to Prepare for your Business Tax Returns
Business Tax Returns
Business Tax Returns | All businesses need to pay taxes of several kinds including state and federal taxes. You do all the hard work to get the business running smoothly. Keeping your business tax compliant is an equally important statutory requirement.
You can file for your individual or business taxes electronically, but there are several complications with business taxes. You’ll always need expert advice on filing for business taxes correctly. Before you can task a business tax specialist, you must prepare your records.
Here is a quick guide for you to prepare for business tax returns.
Know the Due Dates
Small businesses file income taxes along with individual tax returns. The due date set by the IRS is April 15. However, under certain circumstances that date can change. For instance, the tax filing date for the tax returns of 2020 has been extended to May 17, 2021.
Businesses need to file for estimated taxes and quarterly taxes as well. Knowing your tax due dates can save you from penalties and non-compliance.
Understand your Business Entity
You probably would have already discussed different entity structures with your tax advisor. If you haven’t, get to know your right business entity type.
Sole proprietorship, freelancers, and self-employed persons file business income taxes along with individual tax returns. Corporations and Partnerships have tax liabilities structured differently than individuals. Understanding the entity type and tax liability will help you prepare for tax returns smoothly.
Keeping the Business Records in Order
Record-keeping is the most important aspect of tax preparation for any business. You’ll need to maintain the records for accounting accuracy and tax compliance consistently.
Here are a few key business records to keep in order:
- Tax Filing Records for the previous years – for existing businesses
- Bank Account Statements for business and personal accounts
- Business Revenue and indirect income records
- Cost of Goods Sold Statement
- Expense Records for Tax Deductions
- Employment Contribution plans, tax deductions, and other relevant information.
- Information of tax deductions such as business use of home, travel, gifts, or charity donations.
As a business owner, you need to pay estimated taxes. You’ll need to comply with the annual tax filing requirements by matching these tax returns accurately. Remember, you cannot claim a tax deduction or tax credit without keeping proper records. Gather your expense receipts to claim the deductions or back your claims through bank statements.
Gather all the Relevant Information
Apart from business revenue and expense records, you’ll also need to maintain other financial records. For instance, if you have gone through significant business ownership changes during the year. Perhaps, you have purchased large business assets or sold one during the tax year.
Prepare your business records for any significant business changes that may have happened during the tax year.
Understand the Taxes your Business need to Pay
Now that you have prepared the bookkeeping essentials, it’s time to know what taxes you owe to the state or federal agencies. All businesses pay several types of taxes.
Here is a quick list of business taxes that you need to pay.
All businesses must pay income taxes. The filing of these taxes depends on the entity structure of your business. Even if you incur losses, you’ll still need to file for income tax returns. However, you can adjust business losses against other income taxes you owe the IRS.
You pay estimated taxes on a basis. You need to file estimated taxes for withholding income and employment taxes quarterly. Knowing the quarterly due dates for estimated taxes can help you stay compliant and reduce the tax liability.
You’ll need to pay the employment taxes if your business has hired employees. Your employment taxes include income tax withholding, social security and medical contribution, and Federal unemployment taxes.
Sales taxes are collected indirectly. Your business may need to charge customers for sales taxes. You’ll need to pay sales taxes in most states on products and services offered to customers.
Some businesses need to file for excise taxes on the use or consumption of certain types of items such as fuel. You can file for excise taxes quarterly.
If your business has purchased property during a tax year, you’ll need to pay the property tax as well. Your business will pay the property tax on any owned building to the local tax collection authorities.
Preparing for business taxes can be a daunting task. You can seek professional help from a seasoned tax specialist. Compliance with tax requirements can save your business from penalties and audit issues.