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  • Writer's pictureLuis Nieto Benitez

Business Tax Preparations

Key things to keep in mind and prepare your small business for tax season.

Not the most "fun" part of business or even for personal matters when it comes to tax filing. However, the reality is that all small business owners embrace this tedious task of tax preparation, and we hope this post can shed light on some of the things you need to be aware of.


First, it is crucial to identify the kind of business structure that you are preparing since it will determine what forms to file with the IRS and how the business will be taxed according to Federal and/or State standards. In this post we will first cover the LLC structure for single member sole proprietors.


Close the Books!


The first and most important step is to ensure that your fiscal year is properly and accurately reported and that your bank accounts are reconciled with your books. In the post published last week, we covered some of the essential steps to close a fiscal year through QuickBooks. Once financials are closed and accurate you can print them to include them in your tax filing processes.


Pro tip: Contact a CPA office to work alongside with this process, they can provide you with helpful insights such as journal entries or anything relating closing the books. In addition to online forums through QuickBooks or other free resources online.


Collect ALL Federal & State Forms


Whether you own your business and/or have employees on payroll including yourself you must ensure you receive all tax year end paperwork prior filing. These forms include W2's, 1099's, and any other such as Interest forms if you have a mortgage and such. These forms will be crucial to accurately file your tax return.


As a single member LLC, the usual federal filing forms are 1040 and schedule C which reports the businesses profit & loss which is also for sole proprietors or self-employed individuals. This is where those accurately financial statements will come in handy since the Schedule C contains parts such as business earnings (revenue), reported expenses, and inventory (if applicable) to report a business net or loss (Nachbaur, 2022).


Payroll Tax Reporting & Filing


If your business utilizes a payroll company to pay your employees usually the company serves as a third-party advocate with Federal & State tax agencies and files crucial quarterly and monthly forms such as form 940 or 941 which reports businesses payment of employment taxes. If you're working with a CPA office, they will need a copy of these filings which the payroll company can provide and are usually readily available through online portals.


TRIPLE Check Everything


It is never a bad idea to triple check everything prior initiating the filing process. Ensure the books are accurately recorded and reconciled with your bank statements, all applicable forms collected, payroll tax filing records on hand, and comprehension of what kind of filing you need based on your business structure.


Pro tip: Neatly organizing all paperwork in categories in file folders with sticky notes labeling the type of form can minimize confusion or paperwork misplacement.


Submit Documentation


Once compiled all the necessary paperwork including any correspondence with the IRS submit to a tax advisor/accountant. It is also worth mentioning that for single member LLC's or sole proprietors you must also submit any personal information or tax documentations received since in this case filing business tax is in conjunction with your personal income tax return.


Pro tip: It is highly encouraged to work with a tax advisor or CPA/accountant to ensure filing is properly submitted while saving you the time and headache of dealing with filling out the paperwork.


Sit, Wait, and Hope for a REFUND


Personally, the most frustrating part of filing business taxes, especially after a successful and profitable year is obviously not expecting a return or worse owing a substantial amount to the IRS or the State. However, through proper budgeting techniques and awareness of tax liabilities based on quarterly revenue business owners can avoid this unexpected headache. In the end, it is important to be proactive with your revenue streams and spending to ensure these liabilities wont negatively affect the business financial capabilities.


References

Nachbaur, C. (2022, March 10). Schedule C Guide: Everything you need to Know. AGERAS. https://www.ageras.com/blog/schedule-c

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