Business Owners: How to Prepare for Tax Season

December 22, 2020

As an entrepreneur, filing your taxes probably isn’t your favorite business activity. You might even be a bit intimidated by the process. But, it’s a necessary financial task that doesn’t have to be scary. We’ll show you how to prepare for tax season as a business owner.

Think About Hiring a Pro

Business taxes are often more complicated than personal taxes, so consider hiring a professional to assist you. A qualified tax professional: 

  • keeps up with tax law changes

  • knows all of the right forms to file based on your business structure 

  • deducts all of your eligible expenses

  • files your quarterly estimated taxes, so you don’t fall behind

  • helps you create a compliant tax strategy while minimizing your tax liability

Having the right tax expert in your corner is invaluable. They’ll help you meet your tax obligation (without overpaying) and properly document everything. But, if you don’t want to hire someone, you’ll have to research and choose tax filing software. Though not as personalized as working with an accountant (and more involved on your part), decent tax software will guide you through the filing process.

Gather Information and Documentation

Just like with personal taxes, you’ll need several pieces of information to file your business taxes. You’ll need your social security number (SSN), employer identification number (EIN), and your legal business name. You’ll also have to gather documentation for the following:

  • Income: 1099 forms and any other record of payment (you should report all business income received even if the documentation doesn’t exist)

  • Expenses: receipts for business-related purchases and payments, payroll records (for both employees and contractors), mileage logs, records of tax already paid

  • Business reports: Profit & Loss, Income Statement, Balance Sheet, Cash Flow

  • Other: bank statements, investment statements, credit card statements, last year’s tax return, inventory numbers, paperwork for outstanding business loans, records of business assets, history of tax credits previously claimed

Mind Your Deductions

While you can’t deduct every penny of every business expense, you can likely deduct more than you think. Potential deductions include, but aren’t limited to:

  • property (even a home office)

  • advertising expenses

  • professional services (i.e., accountant or lawyer)

  • payroll costs

  • inventory, equipment, and supplies

  • business credit card/loan interest

  • uncollectible balances due

  • employee benefits (i.e., health insurance or retirement savings)

  • industry-related training

  • mileage, meals, and travel

  • charitable giving

Avoid Flaggable Errors

To avoid trouble with the Internal Revenue Service (IRS) and other tax agencies, be sure to avoid errors like:

  • Mixing personal and business finances -- especially if you own an LLC or corporation

  • Calling employees independent contractors (the IRS will think you’re trying to dodge payroll taxes)

  • Failing to keep accurate, detailed records of expenses you write off

Plan for Next Year

As you prepare for this tax season, you may notice holes in your financial operation. Perhaps you need better accounting software. Or, maybe, you could better organize your tax-related records. If you have an accountant, it’s a good idea to consult with them about how to optimize your accounting systems, processes, and procedures so that you can shore things up for next year.

How Rapidly Can Help

Rapidly for Business is the cutting-edge online platform that connects you with accounting professionals who understand your business. Bookkeepers, tax preparers, payroll specialists, virtual CFO’s, and financial consultants will be just a click away. With their help, you’ll be well on your way to meeting your financial goals. The best part? Everything is done virtually, so you never have to leave your home or office.

Final Thoughts

As a business owner, you’d rather be growing your enterprise or serving your customers than dealing with taxes and financial paperwork. But, in order to stay in business, you need to take the time to file your taxes. With a little preparation (and maybe some help from an accounting professional), you can make Uncle Sam happy quickly, so you can get back to doing the work you love.

Don’t forget to consult our handy checklist as you get ready for tax season!

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