Thursday, February 22, 2024

Tax-time tips for busy business owners

By Brittany Sabalza

Tax time is here, and the stress of reconstructing a prior year’s financial picture has its deep holds on some unprepared business owners. Getting organized to file your taxes can be time consuming, confusing and exhausting for a busy business owner, but here are a few tips to keep tax time from taxing you:

Gather all information and prepare your records

Practicing good record keeping is essential to your business. It allows you to not only better monitor the progress of your business, but also easily identify sources of Income, track expenses and support items entered on your tax return. Your records should clearly show all income and expenses, so have gross receipts, expenses, inventory and business asset records ready. For assets, include when, where and what cost you purchased or sold the asset, and any depreciation or 179 deduction previously taken. Purchases, sales, payroll and other transactions you have in your business generate supporting documents. Such documents may include paid bills, invoices, receipts, deposit slips and canceled checks.

Don’t forget prior year tax returns

Having your prior year tax return on hand will help reduce errors and help assess your tax situation. A current and prior year income tax comparison can be made based on prior year entries. Items such as prior year income, tax liability, tax benefits, prior year depreciation and asset details can be easily found.

Organize all employee and contractor records

Verify employee records by requesting that staff promptly update any changes to their information. Your records should include employee demographics, payroll history, and any benefits, gifts and rewards received by the employee. Any amounts of $600 or more paid to a non-employee, like a subcontractor or attorney, are required to be reported on form 1099-Misc. Forms W-2 and 1099-Misc. should be mailed out to recipients and submitted to the IRS no later than Jan. 31.

Visit and utilize IRS online tools

The IRS Small Business and Self Employed Center is full of great resources on various business tax topics. Small Business Taxes: The Virtual Workshop, a series of IRS webinars offers guidance on various tax topics including what you need to know about your business and taxes, setting up a retirement plan and hiring employees. Publication 583 “Starting a business and keeping records,” Publications 334 “Small Business Tax Guide,” Publication 15 “Circular E Employer Tax Guide” and other tax publications are available to research tough questions and receive a more thorough explanation. From choosing an entity, the stages of owning a business and filing/paying taxes, the IRS has a variety of tools to help business owners understand their tax situations.

Choose your filing option and seek professional help

Though it is not uncommon for business owners to prepare their own returns, there are advantages to seeking a tax professional to prepare your taxes or for advice. Business taxes are not the same across the board, and codes can change based on your particular business. A knowledgeable tax professional would be current on the constant changes of the already complex tax code, be able to identify tax relevant business deductions and credits, and offer recommendations on saving tax dollars. There are many preparation options to choose from, but choose wisely. If you’re planning on using a tax professional, ask for references or credentials and research tax preparers before you hand over any personal information. The IRS Directory of Federal Tax Return Preparers is available to assist you in your search for a qualified tax professional.

Start as soon as possible

Don’t waste time; start organizing your records as soon as possible. The filing deadline is April 17, but don’t wait until then to get prepared. If you’re not ready to file by the deadline, be sure to file for an extension, but remember that an extension will extend the due date of the return by six months — it does not extend the time to pay any taxes due. This means that all tax liability due after the original filing deadline will begin to accrue penalties and interest until any tax obligation it is paid in full.

Brittany Sabalza is director of continuing education at Pro Tax Solutions in Indianapolis.

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