If you’re like most small business owners, you’re looking for ways to save money and avoid potential problems with the Internal Revenue Service (IRS).
- But staying on top of your taxes can take up lots of valuable time. There’s record-keeping, handling tax payments, and meeting with tax preparers
- Maybe that’s why business owners spend 32 hours annually on taxes according to the SBA
- Not to mention filing taxes can be stressful. According to a 2018 survey, 52% of U.S. adults find the tax-filing process stressful
Whether this is your first time filing taxes for your small business or you’re a seasoned business owner interested in maximizing business deductions, we’ve got you covered.
In fact, if you’ve ever asked yourself, “What information do I need to file taxes for a small business?” or “What does my accountant need to do my business taxes?”, this blog post is for you.
We’ve put together a small business tax preparation checklist. It will help you gather the necessary information and materials to file your business tax return. That way you’ll know exactly what documents you need beforehand.
Plus, our checklist for your small businesses taxes can help you file a more accurate return, spot more tax deductions, and avoid paying penalties.
Get the bonus: Download your 2020 Small Business Tax Prep Checklist [PDF]
Let’s dive right in…
Disclaimer: This blog post is intended to provide generalized information designed to educate a broad segment of the public. It’s not personalized tax, investment, legal, or other business and professional advice. If you have questions, talk to a qualified professional.
Find out when your taxes are due
If you’ve been Googling, “When are business taxes due 2020?”, you may have seen conflicting information online.
Because of the coronavirus outbreak, the U.S. Department of Treasury delayed the federal tax due date by 90 days. So, taxes are now due July 15, 2020. According to Secretary Steven T. Mnuchin, “All taxpayers and businesses will have this additional time to file and make payments without interest or penalties.”
New NBC news reports claim that the government is considering extending that deadline to September 15 (or even December 15) although talks within the Trump administration are still in the preliminary stages.
If you’re self-employed, you probably pay business taxes in four installments throughout the year, instead of all on one day. These are called estimated tax payments. The original due dates for these payments were April 15, June 17, September 16, and January 15 (2021).
But, because of the coronavirus, the April 15 deadline for estimated taxes has been pushed to July 15, but the June, September, and January deadlines have not been adjusted yet. That means your next estimated tax payment should be on June 15, then July 15.
State income tax due dates can vary so check with your state’s tax collection authority to confirm the filing and payment deadline in your state.
These dates are important because despite the extension, it’s important to get your bookkeeping done early.
Bookkeeping and preparing financial statements are a completely separate process to preparing your business tax return. These activities should be completed before your accounting firm or tax preparer gets to work. If you want to make tax prep easier, have your entire year of books reconciled by January—or even better, quarterly to avoid scrambling during the busy season.
File the right tax form based on your business structure
It’s important to understand your entity’s unique requirements because every entity has different tax requirements.
The type of form you need will depend on the type of business you run.
- Attach a Schedule C Form to your personal income tax return, or use a 1099-MISC if you’re a sole proprietor
- Use Form 1120 if you’re a C-corporation
- Use Form 1120S if you have S-corporation status
- File Form 1065 as an informational return and submit your share of the business’s expenses, income, and losses on Schedule K-1 if you’re in a partnership
Gather all your general information—from your legal name to address
Whether you file your own taxes or have a professional prepare your return, you’ll need to provide some basic information on all the forms. This includes your legal name, Social Security number (SSN) and address. If you have an employer identification number (EIN) for your business, you’ll need that. You’ll also need the legal business name.
If you changed your name during the past year, make sure the name on your tax return matches the name on file with the Social Security Administration (SSA). For example, some people use their spouse’s last name following a wedding but don’t change their name with the SSA. The IRS may reject or delay your return if the name on your tax return doesn’t match the one they have on file.
Make sure your SSN and EIN are accurate as well since any typos can cause delayed refunds.
Keep your expense receipts handy
The IRS requires you to have documentation (Read: receipts) for all expenses related to your business. Bookkeeping software entries and even bank statements are not sufficient. You don’t have to send this documentation in with your tax return but you should maintain copies of receipts, canceled checks, bills, etc. to support your business expenses. You should keep them for a minimum of six years from the date you file your return.
Be especially diligent about travel and entertainment expenses since this is an area the IRS and courts are especially strict about. So, be sure to keep detailed receipts showing the date, place, amount, and business purpose of each expense.
Prepare all your reporting and bookkeeping documents
If you keep proper accounting records throughout the year, it makes it easier to prepare your return at tax time.
If you are using a professional tax preparer, one of the first things they will ask you for is your bookkeeping records. You’ll want to deliver items like your journal entries, profit and loss statement, and balance sheet either as printed copies or digital files. That way you won’t have to pay by the hour for a professional to organize your records.
Understand where to include your interest income
If you have a business checking or savings account that earns interest, you may receive a 1099-INT from your bank detailing the interest you earned during the year.
You won’t include this income with your business income on Schedule C even though it was received from a business account. Instead, you’ll include it in Schedule B, with the personal interest and dividend income you earned during the year.
Understand the eligibilities of home office deductions
If you use part of your home (regularly and exclusively) for business, you may be eligible for the home office deduction.
Check out IRS Form 8829 for more details on whether you qualify.
If you’re eligible, you’ll need to know the square footage of your home office and the square footage of your entire home.
Then, you can deduct home office expenses in one of two ways:
- The simplified option: You don’t deduct actual expenses. Instead, you multiply the square footage of your space by a prescribed rate. The rate is $5 per square foot for up to 300 square feet of space.
- The regular option: You value your home office by measuring actual expenditures against your overall residence expenses. You’re allowed to deduct mortgage interest, taxes, maintenance and repairs, insurance, utilities, and other expenses.
Understand what’s deductible for your business vehicle
Vehicle expenses are another common deduction associated with small business owners. To qualify, you’ll need to keep a log of your mileage for business use. The IRS won’t allow a deduction for business use of a vehicle if you don’t have a record of the miles driven for business. You can keep your log manually or electronically.
Similar to the home office deduction, the vehicle deduction is based on the percentage of business vs. personal use of your vehicle. For example, if you drove 20,000 miles during the year and 2,000 of those miles were business-related, you would be eligible to deduct 10% of the cost of owning and operating your vehicle. Fuel and oil costs, loan interest, lease payments, parking fees, tolls, repairs and maintenance, and auto insurance are some of the costs you can deduct.
Gather records of assets sold or purchased during the year
You’ll want to collect records of all the assets you sold or purchased during the year. So, if you bought a new laptop or sold some unwanted equipment, you need to find the documentation of the transaction.
You’ll need the cost of each asset, the date it was placed in service in your business, the date sold, and the amount of the proceeds from the sale to calculate the gain or loss on the sale and depreciation expense for any furniture or equipment.
Deduct your health insurance premiums
If you’re self-employed and pay for your own health insurance, you can deduct the premiums you pay for medical, dental, vision and long-term care insurance premiums for yourselves and your dependents.
Instead of deducting self-employed health insurance premiums on Schedule C, you’ll report the amount you paid on Line 29 of Form 1040.
Your deduction is limited to the net profits from your business, but if you paid more for health insurance than you made from your business, any excess costs may be deductible as itemized medical expenses on Schedule A.
If you need one, get an extension
There’s no harm in requesting an extension. Plus, if it gives you the time you need to submit a full and complete return, then it’s worth doing.
Typically you need to file for an extension before the original due date of your tax return. You also have to pay your taxes on time — even if you’ve received an extension. The extension only applies to filing the return.
Extensions differ by type of business entity, but they tend to be automatic once you file them. In some cases, you can request multiple extensions, but if a second extension is available, it’s usually more difficult to get.
You have until tax day to file for an extension. For individuals, that means you can file for an extension until July 15. Businesses that are S corps and partnerships can file for an extension until March 16. The deadline for C corps to file for an extension is July 15.
State rules for income tax extensions may differ from federal rules. Check with your state tax agency to see whether your federal extension request will apply to your state return as well.
Make tax time easy: How Neat helps set up business owners for success
Need some help getting organized?
One of the most stressful parts of preparing your tax return is figuring out what items you need to get it done. Even if you’ve kept up with your bookkeeping and record-keeping during the year, when it comes time to file your small business tax return you may find yourself digging through shoeboxes full of receipts.
Accountants often charge by the hour, so having all the necessary information from the beginning saves them time (and saves you money). In other words, keeping all your documents in one safe and manageable place will save you time when preparing your taxes.
Here’s how Neat can help you with tax preparation:
Simplify Tax Preparation — Neat helps you manage documents, categorize expenses, and quickly reconcile accounts for easy tax filing.
Easily Communicate With Your Accountant — Tired of long email chains? You can send items to your accountant or tax preparer straight from Neat. Every item and folder in Neat also allows you to add and receive comments, making collaboration a breeze.
File Your Taxes Quickly (And Accurately) — Easily send expenses to your tax or accounting software. Map expenses a single time to match your QuickBooks preferences, and incoming data will be automatically coded. Export tax categories, expenses, and document images to tax software like TurboTax to eliminate the need to type in data. Our tax solution tags expenses and retains records to maximize deductions and audit-proof your business.
Simplify your accounting by reducing data entry and automatically organizing expenses. Neat integrates seamlessly with QuickBooks Online or QuickBooks Desktop.
It’s as easy as signing in to QuickBooks from the Neat app to connect. Next, review and send all expense-related data directly over to QuickBooks. Images of receipts and invoices are automatically attached. Once you map expenses to match your QuickBooks preferences future data will map automatically.
We also have integrations with H&R Block, Quicken, and Intuit TurboTax.
Tax preparation doesn’t have to be stressful.
Our small business tax preparation checklist can help you gather all the information you need to file your business tax return accurately and easily. And our automated bookkeeping solution can help you stay organized year-round.
Want to see how to maximize deductions and audit-proof your business? Try Neat free for 15 days! Cancel anytime.