The new year is also the start of tax season, so it’s time for your small business to get organized, file business expenses correctly, and ensure you are getting the correct refund. The details of how to accomplish this depend, in part, on how your business is organized: sole proprietorship, partnership, LLC or corporation. Yet the ways you go about calculating your taxable business income are pretty much the same however you’re organized. Here are the basic steps you’ll need to file your taxes properly.
Collect your business records: Hopefully, you have a computer and/or file drawer that is carefully organized to maintain all your raw paperwork, such as invoices, receipts, tax documents, bank statements, business diaries, etc. But we know that some folks are in the habit of piling all their papers into a heap on a desk. Well, now is the time to attack those records, get them sorted and entered onto a spreadsheet or accounting package. If you use software like Quicken or QuickBooks, you can go through your transactions, flag tax-related items and associate them with the appropriate IRS tax forms and lines. Once complete, you can then import the data into tax preparation software and it will automatically prefill many of your forms and schedules.
Resurrect missing information: If you are somewhat disorganized, you may not have done a 100 percent perfect job of preserving your receipts. For example, you know you went on a business trip last year, but can’t seem to locate any of the receipts for travel, lodging, meals, taxis and so forth. Unless you paid for everything in cash, you can resurrect the missing information by combing through your credit card and bank statements. In fact, it’s a good idea to scour the entire 12 months of these statements to make sure you haven’t missed any deductible expenses. If you operate on a cash basis, remember that tax-related events occur when money is collected or disbursed. Accrual-based businesses must instead use the dates on which income is earned and expenses are incurred.
Find the correct forms: The IRS is pretty picky on which forms you use to file your taxes – they want you to use the right If you are a sole proprietor or run a one-person LLC, this means you’ll be getting intimate with Schedule C of Form 1040. A corporation must instead file Form 1120 separately from your personal return. Partnerships have separate forms as well. Your tax software can quickly ascertain which forms it will use to collect and report your information.
Make 401(k) payment: Your tax software will keep a running total of your refund or taxes due as you fill in the required data. If it turns out you owe the IRS money and you file on Schedule C, remember that you can fund your personal 401(k) up until the tax filing deadline and deduct the contribution from last year’s income. For 2016, that contribution can be as much as $59,000, depending on your age and income.
File on time: If you need an extension, remember that only buys you time for filing, not for paying. You still must pay what you think you owe by the April 15 deadline. Note that if you file Form 1120S as a Subchapter S corporation, the deadline is March 15. If your fiscal year doesn’t coincide with the calendar year, adjust your dates accordingly.
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