5 Things Your Business Should Have Prepared for Tax Season
Tax season is here, which means it’s time to cross your T’s, dot your I’s and prove to Uncle Sam that your business is in good financial standing. Although this process can be stressful for business owners, knowing what to prepare and how to do it will help alleviate your worries as we creep closer to the deadline. With that said, here are five things you should focus on when preparing to file your business’s taxes.
An Employer Identification Number
First and foremost, you’ll need to obtain an EIN from the Internal Revenue Service. Once you apply for one online (the quickest way of applying) and receive a nine-digit number, the IRS will be able to identify your business and its employees for tax purposes. Additionally, banks and other companies might require that you provide an EIN when conducting business with them, so it’s important to get one even if your business isn’t required to file a tax return with it.
A Calendar of Important Dates
Your business’s filing deadline will depend on its structure. To avoid paying a 5-percent monthly penalty for filing late (up to a maximum of 25 percent), make sure you’re aware of the important dates and deadlines on the tax calendar.
- March 16: This deadline is for S corporations that must complete and file a Form 1120S for income taxes. You should provide any shareholders with a Schedule K-1 (Form 1120S) so they can determine their share of income, credits and deductions.
- April 15: This deadline is for sole proprietorship that must complete and file a Form 1040 with a Schedule C.
Remember, if you fail to send your tax return on time, you’ll accrue a penalty that’s calculated from your deadline to the date you finally file.
An Organized File of Records
The last thing you want to do when tax season arrives is sort through unorganized files searching for the documents and the information you need to file. To counter record-keeping clutter, make sure to keep accurate accounts of all expenses and sales your business experiences throughout the year. These records should be kept for a minimum of five years in case the IRS investigates your business. Items to save include: invoices, sales receipts, deposit slips, canceled checks and any other documents involving your company’s finances.
A Tax Return From Last Year
Another reason to have an organized file of records is so you can easily find your previous tax returns. You can use last year’s return to find valuable information that’ll guide you as you file taxes this year. For example, if you’re preparing your business’s tax return for the first time, last year’s return can verify:
- How you tracked your business’s finances (cash vs. accrual)
- The date your started or incorporated your business
- The date you decided to become an S corporation
- How you tracked your business’s inventory (if applicable)
- Your starting balance sheet amounts
- Partner/shareholder information if there aren’t changes
Another reason to pull out last year’s tax return is because it’s a great tool for comparison. It can raise important red flags concerning missed deductions, or items that seem unusually small or large in comparison to the previous year.
A List of Potential Tax Credits
Considering tax credits reduce your potential taxes on a dollar-for-dollar basis, it’s important to have a list of the ones your business might be eligible for. Research each business tax credit available and read over its stipulations carefully. To claim the credit, you’ll have to complete the proper form in addition to filing a Form 3800. Also note that if you file a Form 1040 Schedule C, you might qualify to claim the Earned Income Tax Credit.
If you’re intimidated by filing your business’s taxes on your own, it’s advised that you seek help from professional accountants and consultants. This can prevent your business from losing money, getting audited and, ultimately, ending up on Uncle Sam’s bad side. But if you do file on your own, make sure you’re fully prepared.