It’s the New Year, and you know what that means: time to start thinking about filing those taxes. I can just hear you cheering now. As a small business, getting organized in preparation for your tax filing is especially important, as you don’t want to miss out on deductions and tax breaks. That’s why we’ve put together this top six guide to help you through.
1. Make sure you have an Employer Identification Number
First and foremost, if you’ve just begun hiring employees this year and haven’t yet filed for an Employer Identification Number (EIN) (also known as a Federal Tax Identification Number), do so immediately online.
Even if you haven’t hired employees, you’ll still need an EIN if you operate your business as a corporation or partnership, file excise, alcohol or firearms tax returns, withhold taxes on income to a non-resident alien, or are involved in a number of organization listed on the EIN site linked to above. You may want to consider getting one should you plan on taking on employees this year, or even as a sole proprietor, as sometimes the IRS will take a harder look at sole proprietors without them (and you don’t want to give them cause to do that).
2. Get an accounting or bookkeeping system
Whether it’s a simple ledger or it’s accounting software, now is the time to start thinking extensively about your bookkeeping system. This should help you keep track of income, expenses, and deductions — all important to have on hand should the IRS need more information from you.
On a broader level, this should include further operating systems throughout the office, like having a clear system for employees to send in receipts for expense compensation, or sending out and collecting invoices on set dates. This will help you organize and compile information in the long run, so that your next year’s filing will be a breeze.
On that note, before taking the data you find in your system and claiming deductions, it’s best to familiarize yourself with just what is and is not deductible in the first place over at the IRS site.
3. Research tax and financial software
Quicken, Quickbooks, TurboTax, whatever. Buying good tax software will be well worth the expense, as it cuts down on the amount of data entry you’ll need to do and the amount of brain power you need to siphon, automatically applying payments to invoices, producing informative reports, downloading bank transactions and expenses, and making sure you don’t miss a deduction. Tax software will be particularly beneficial if your revenue stream relies on your labor; spend less time doing taxes, and more time getting the job done!
4. Complete and send each employee the right forms
When you first take on a new employee, make sure to have them fill out a W-4 so that you can determine how much of their paycheck to withhold. You’ll then send them a W-2 form once you’re finished with the business’ taxes so that they can file their own. Likewise, if you’ve taken on any contractors, they should have been sent W-9 forms immediately upon engagement (though of course you can still do it now) and you’ll need to send them a 1099as soon as you can.
5. Fill out the appropriate forms and file online
Just what forms you’ll need to complete for the company will depend on your entity. Sole proprietors are considered to be individuals and will be taxed through form 1040. Partnerships file the informational 1065 form and a Schedule K-1, which breaks down who has earned what. Corporations will file form 1120, and S-Corps will file specifically 1120s and a Schedule K-1.
To make the task much faster for yourself, file through the IRS site, e-file, which will direct you through the process.
6. Pay what you owe
If your tax bill comes as somewhat of a surprise to you, speak to an accountant about setting up regularly quarterly payments for next year. You may, for instance, want to set aside a quarter or more of your revenue or more, dependent on your entity.
While it may never be fun, filing your taxes doesn’t have to be miserable. Get a few things in order, and file away!
- IRS Announces Simplified Option for Claiming Home Office Deduction Starting This Year; Eligible Home-Based Businesses May Deduct up to $1,500(dsimmonscpa.com)
- TurboTax – Tax Tips for Sole Proprietors(turbotax.intuit.com)
- Platinum Tax Defenders Points Out To Business Owners Affected By Hurricane Sandy That IRS Has Extended Third & Fourth Quarter Filings & They Have Until 2/1/13 To Comply(virtual-strategy.com)
- IRS Announces Simpler Rules for Home-Office Deductions – Bloomberg(bloomberg.com)
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