Running your own business can have many benefits including the ability to create your own schedule and choose your customers. Furthermore, you get to decide who you work within the office and how much to pay yourself. However, as a business owner, it is also necessary to pay income and other taxes.
Let’s take a look at how you can prepare for tax season as an entrepreneur.
Keep Organized Records
It is critical that you know how much revenue your company generated in a given year. Your books should also indicate how much was paid to employees, vendors and other parties. This will help determine how much the company owes in taxes and what types of credits or deductions it may be entitled to. To make it easier to stay organized, hire a tax accountant or invest in accounts payable automation software.
Elect the Most Favorable Tax Treatment
A company has a variety of options when it comes to how it would like to be taxed. For small companies that only have one or two owners, it may be best to use the LLC structure. If you decide to go with LLC structure as your best option, there is a great guide on LLC operating agreements that will help you submit your form correctly. These are easier to form than corporations while allowing owners to elect to be taxed like one. Those who choose to operate as an LLC generally don’t have to have a shareholders meeting or file as many forms with state or federal government agencies.
However, if you are looking for the easiest way to file your business taxes, it may be wise to file as a sole proprietor. Your business income taxes are due at the same time as your personal income taxes, and they are filed through the use of Schedule C. Contrary to popular belief, using a Schedule C does not automatically increase your risk of being audited.
Ask for Records if Necessary
If you are missing a Form 1099 from a client, don’t be afraid to ask for another copy. It is also possible to ask the IRS for copies of any forms that it may have received. Also, don’t hesitate to ask for any information from those who you need to send Form 1099 to. In the event that you make a mistake when filing a tax return, the IRS could choose to audit that return or otherwise claim that you owe additional money. Your clients could face an audit if they rely on a Form 1099 that had errors on it when filling out their tax returns.
Extensions to File are Available
If you don’t think that you can file your business tax return on time, it is possible to ask for an extension. The extension will give you an extra six months to file a return without any penalty. However, it is important to note that you don’t get an extension to pay taxes owed. The silver lining is that the penalty for failing to file is generally larger than the penalty for not paying on time.
When you are required to file your return depends on what type of business you run and what type of the calendar year it has. For instance, a corporation on a traditional calendar year would need to file corporate returns by March 15. Therefore, an extension to file would give the company until September 15 to do so. If your business uses a fiscal year, the extension would be for six months after the return was originally due.
It is important that you are able to file your taxes correctly and in a timely manner no matter how large or small your company is. Failing to do so could lead to financial or criminal penalties that make it difficult or impossible to continue running your business. If you are audited or contacted by the IRS, don’t hesitate to reach out to an attorney or enrolled agent for help.