Tax season can be stressful for entrepreneurs, especially when deadlines are approaching. Keeping in good standing with the Internal Revenue Service (IRS) is essential, but making sure you’re not overpaying taxes is equally important. Making a mistake could attract unwanted attention from the IRS, so it’s a smart idea to be on your A game.
Getting ready to file your taxes as tax time approaches is the best way to keep the IRS happy. One of the best things you can do is organize yourself with a clear list of what your business will need for tax preparation.
Below, I will discuss eight fantastic ways entrepreneurs and business owners can prepare for tax season.
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1: Identify Your Tax Form and Deadline
Every business is unique. Taxes must be paid by everyone, but the type of business you operate determines how and when you should file.
Understanding your form and deadline will help you begin the tax filing process.
Tax Filing Forms and Deadlines
Tax Filing Deadline
Single Member LLC
Form 1065 & Schedule K1
Form 1065 & Schedule K1
April 15th (If fiscal year ends December 31st)
Keep in mind that if April 15 or March 15 falls on a weekend or a federal holiday, you do get a slight extension. The following business day will then be the due date for taxes.
2: Compile Records of Business Transactions
If you didn’t already know, the tax filing process takes a significant amount of time. That’s even truer for entrepreneurs and business owners. It’s because organizing business transactions requires the greatest degree of accuracy.
As long as you have been keeping up with your bookkeeping throughout the year, gathering these documents should be relatively painless. Printing the reports is as simple as using your accounting software.
On the other hand, you’ll have to work harder if you let bookkeeping slip through the cracks. Fortunately, you can use this rush for records as an opportunity to find a reliable accounting or bookkeeping system for the future.
Documents Entrepreneurs Need To File Taxes
- EIN or SSN: Your taxpayer identification number
- Income statement for your business
- Balance sheet
- Purchase receipts, including cash purchases, for all business expenses
- Bank statements for your business
- In the absence of a dedicated business bank account, your personal bank statements
- Credit card statements
- Payroll statements
- Last year’s tax return
- Estimated taxes paid throughout the year
- 1099 forms received or sent
When you’ve collected all your documents, you can work on analyzing and calculating the numbers. If you’ve been bookkeeping all year, use this time to double-check your work.
3: Determine Tax Credits and Deductions
There are some major differences between a business income tax return and an individual income tax return, so take time to find, organize, and calculate all the possible tax deductions and credits.
The IRS pays close attention to your business tax deductions and credits, too, since they can significantly reduce your tax burden. Sadly, this is where some fraudulent business owners get creative. I can’t stress enough how important it is to be honest, because if you’re not, it’s only going to come back to bite you in the future.
There are some items that deserve special attention. I implore you to take the necessary time to ensure that you have the necessary documentation to support the numbers.
Mileage incurred for business purposes can be deducted. Keep track of mileage that relates directly to your business tasks, not to personal errands.
Home Office Deduction
Home offices that are exclusively (not partially) used for business can be deducted as business expenses. However, you must be careful in determining this space, as it’s often an IRS audit red flag.
Entertainment and Travel Deductions
Travel expenses and entertainment expenses related to your business can be deducted from business taxes if you travel on business or entertain clients or employees. If your travels include business and pleasure, make sure you separate business and personal expenses.
Small Employer Health Insurance Tax Credit
There may be a tax credit available for employees who pay for employee health insurance.
Disabled Access Credit
You may be eligible for a disabled access tax credit if you provide access to employees with disabilities.
Charitable Contribution Tax Deduction
The charitable contributions your business has made during the year can be deducted from your tax return. Make sure your records are accurate as charitable donations may flag your account for an IRS audit.
4: Deduct Your Estimated Tax Payments
Small business tax payments are likely to have been made in various ways throughout the year, depending on your business type and income.
Estimated tax payments must be made by self-employed business owners throughout the year in order to cover their estimated tax burden. Other business owners may make quarterly tax payments.
If you have already paid taxes to the IRS, be sure to deduct this. You shouldn’t pay more than you owe in business taxes.
5: If Needed, Request An Extension
It may take a lot of time to prepare taxes for entrepreneurs and business owners, but getting it right is imperative. Filling out the appropriate paperwork and understanding the steps to file small business taxes is crucial. A business tax return extension is available if you’re not confident you can file on time.
Tax filing extensions must be requested using IRS Form 7004 before the filing deadline. A paper version of Form 7004 is also available if you prefer not to e-file it.
Remember: An extension doesn’t give you extra time to pay-don’t assume it does. Whenever you file for an extension, you’ll be required to pay any taxes you owe. Otherwise, you’ll owe interest and penalties.
6: Plan For Your Federal Tax Obligation
When you’ve finished your tax forms, review your bottom line. Your business taxes are due, how much do you owe? What is your payment plan? Assuming you’ve calculated your estimated payments correctly, you should’ve already paid a substantial percentage of your taxes.
If you are looking at the bottom line now, you may not be able to pay it all in one lump sum. For those who fall into that category, the IRS offers installment payment plans. It may also be possible to defer your tax obligation for a short period of time or negotiate a compromise offer with your taxing authority.
7: Verify Your Tax Forms
In the case of tax preparation done by an accountant, you will act as a second pair of eyes on the numbers. Review the forms and numbers that have been provided for you. As part of your filing, your signature will be accompanied by their PTIN.
I applaud you if you completed your own tax forms, for real! However, you might benefit from hiring another tax professional to review them.
Unlike accountants, bookkeepers rarely draft tax documents but may be able to double-check business forms used to prepare tax returns.
8: File Your Taxes
Finally, the last and perhaps easiest step. Submitting your tax forms is the last step after preparing, checking, and rechecking them.
Using tax preparation software makes e-filing business taxes relatively simple. You can easily confirm receipt of the forms when you submit them online.
In the event you have worked with an enrolled agent, he or she may also file your taxes.
Additionally, you can also send your taxes by mail—just make sure they’re postmarked by the required deadline.
More Help For Entrepreneurs
Being an entrepreneur is one of the most rewarding (and stressful) things a person can go through, but don’t let that deter you from doing things the right way.
As a business coach with over a decade of experience helping entrepreneurs and small business owners just like you, I have tons of resources at your disposal.
…And don’t forget! Register for my FREE online training, ‘Teach Me The Tax Game’, and learn how to make $100K in just 90 days as a tax preparer!