Filing your business taxes in a timely manner is an essential part of running your business especially if you want to avoid unnecessary fees, interest, and penalties. In this guide, we will discuss the basic things small business owners need to know to file their business taxes in 2020.
Filing Business Taxes: The Basics
Many people dread doing their taxes every year, and this can be especially daunting if you are a new business owner and don’t know where to start. When it comes to taxes, the worst case scenario is having to spend hours sorting through old documents and then doing your taxes only to find out you owe a tremendous amount that you weren’t anticipating and haven’t budgeted for. On the other hand, the best case scenario is that having all your documents in order and owing nothing or even getting a refund check.
The best thing you can do set yourself up for the best case scenario is to keep good records on a monthly basis. It’s helpful to also work with an accountant on a regular basis to help you project your taxes throughout the year so you don’t get any surprises. A good accountant can also help you take advantage of all appropriate deductions and credits available to your business. For more information from the IRS on filing and paying your business taxes, click here.
What is the minimum income to file taxes for a business?
If you are a new business or a sole proprietor you may be wondering what the minimum income you need to make to file taxes. In general, you can earn up to $400 in net income (income after you deduct your business expenses) as a sole proprietor without having to pay taxes for your small business. Any other type of business is required to file taxes regardless of the amount of income they earn.
Which types of businesses have to file taxes?
If paying businesses taxes is new to you, you may be wondering which types of businesses have to file taxes. The short answer is- all of them. Whether you are a sole proprietor, an LLC, a partnership or a corporation you will have to file taxes. As mentioned before, the one exception is if you are a sole proprietor that had a net income of $400 or under.
What do I need to get started?
If you use PaySimple and have a good record keeping system, getting started with your taxes is easy. All you need to do is give your accountant a copy of your businesses balance sheet and income statement (also known as a profit and loss statement). If you don’t have an accounting system, now is the time to go through your receipts and bank statements to list out all of your income and expenses so you can give that information to your accountant. For more information on what you should keep for tax time click here.
What Is The 2021 Business Tax Filing Deadline?
Keeping up with tax filing deadlines can be difficult. To make it easier, we’ve compiled a list of the typical tax filing due dates based on business types within our guide below. While you can file and pay your taxes later in the year, it is prudent to file your taxes sooner if you are owed a refund.
How To File Business Taxes In 2021
There are a couple of options for filing your business taxes. You can do them yourself with an e-file tool (see list of approved e-file providers here), or you can work with an accountant or other type of tax professional. If you are going to do it yourself it’s helpful to understand the forms you will need to submit. For a sole proprietor or a single member LLC the most important business tax form to understand is the Schedule C (Form 1040). Find more information about that form here.
The first step is in filing business taxes is to gather all your documentation. If you’re working with an accountant, you can connect with them first and they will generally give you a list of documentation they need to prepare your taxes. Most importantly, they will need your balance sheet and profit and loss statement. If you don’t have that then they will need a listing of your business income and expenses for the year. If you drive for your business they will also want a log of the miles that you’ve driven for your business. If it’s the first time working with them and you have an established business they will also want to see a copy of your previous year’s tax return. If you’re not using an accountant this documentation will help you self-prepare your taxes as well.
If you’re working with a tax professional, you will have an initial meeting with them (in person, over the phone, etc.) where they will review your documents, and ask you clarifying questions to help you take advantage of business tax deductions and credits. For example, they may ask questions such as “Did you work from home, if so, what’s the square footage of your house that is dedicated to your business?”, “Did you buy any equipment for your business?” and/or “Did you make any quarterly estimate payments?” It is also helpful for you take a list of your own questions to your initial meeting so you can get those clarified with your accountant.
Next, your accountant will then work on your taxes on their own and may contact you with additional questions they may have. Once they’ve completed your return, they will call you with the results, and discuss how it went, and what you owe or are getting back. They should also help you plan for the following year (if you need to make quarterly estimates, additional ways you can save on taxes, ways to avoid fees and penalties, etc.). If you have any items you forgot to record or share with them this is the time to bring it up to them.
Finally, your accountant will ask you how you want to pay the IRS if you owe or how you’d like to be paid if you are owed a refund. If you opt for direct deposit they will ask for your banking information. The accountant will mail or e-send (email, DocuSign, etc.) you their e-file signature forms to authorize them to file the return on your behalf. Once the taxes are filed, your accountant will send you a copy of your documents, and your the bill from them. If you are getting a refund you should get it within a few weeks.
How To File Business Tax Extension In 2021
As mentioned previously, because of the coronavirus emergency, the Treasury Department and Internal Revenue Service announced that the tax filing and payment due date is automatically extended to July 15, 2020. If you can complete your taxes by that time there is no need to file an extension. If you want to file for a business tax extension beyond July 15, 2020 you will need to fill out a form and send it to the IRS. If you still need to file an extension, the form varies based on the type of business you have. For example, if you are a sole proprietor filing a schedule C then you will send in the 4868 form. On the other hand, if you are a corporation then you will need to fill out and send in the 7004 form. Keep in mind that under normal (i.e. non-Covid 19) circumstances an extension of time to file your tax return is not an extension of the time you have to pay (if you owe taxes).
Business taxes can be stressful, but with the right team and the right business tools they don’t have to be. If tax time has you stressed and scrabbling because you’re looking through months of bank statements, you may want to consider using PaySimple to streamline financial tasks moving forward.