Tax time can be terrifying for new businesses. However, mid-April needn’t fill you with dread. Planning ahead will help you survive your first corporate filing.
Know Your Business Type
Your business structure impacts how you report to the IRS and the tax you’ll need to pay. You should have defined your business type when you established your business. Your accountant or the U.S. Small Business Administration can clarify what your business structure means for your tax reporting.
Prepare for Sales Tax
Online and bricks and mortar businesses are liable for sales tax. You should already be passing on to your customers so it doesn’t eat into your bottom line. Record the amount of sales tax you collect on every transaction to make reporting this tax easy.
If you haven’t charged sales tax, don’t panic. Methodically review your sales history and calculate the payable sales tax. Theoretically, you could ask your customers for this tax retroactively, but this is unlikely to win you any friends. Instead, most businesses in this position simply bear the cost of the sales tax burden. It’s an expensive lesson, but one you won’t make again. If you can’t afford your sales tax burden, your accountant or tax attorney can help you file a voluntary disclosure agreement to buy you more time and reduce penalties.
Businesses typically pay sales tax every quarter. You might transition to annual payments if you don’t collect a lot of sales tax.
Keep Records for Deductions
Claiming all your relevant deductions is the best way to reduce your tax bill. Keep receipts for all business expenses including office equipment, utilities, and training and conference fees. If any receipts are missing, contact relevant companies before tax time to see whether they can be replaced. Keep a log book noting the distance traveled on all business trips so you can accurately claim mileage.
Set Aside Money for Tax Bill
Maintaining good cash flow can be difficult for businesses, especially in their first year. However, it is crucial for you to break the cycle of operating from payment to payment and start putting money aside for taxes.
Experts recommend setting aside a third of business income for paying your tax burden. If you’re lucky, you might end up with a much smaller tax bill once you’ve made your deductions. However, being overly prepared is always better. A healthy nest egg should ensure you have enough money to pay your tax completely and avoid penalties and interest charges. If your annual tax bill is more than $1,000, consider transitioning from yearly to quarterly tax payments. Smaller, more regular payments are always much easier on business budgets.
Make Sure You Have the Latest Tax Information
The tax landscape is changing all the time. Stay informed about state and federal changes to make sure you’re filing your taxes right. These changes might include new deductions or and penalties for late or incorrect filing. Financial blogs and are valuable sources of information about the latest tax changes and how they impact businesses.
Don’t let tax time strike fear in your heart. With careful planning, filing for the first time will be easier than you expect.