Tax season can be daunting and typically is dreaded by most, but with the proper preparation, filing taxes can be tackled with ease. Business and agency owners in particular need to be well prepared and know the differences between filing personal taxes and filing taxes for their enterprise.
Making a Checklist
Getting ahead of the game and making a checklist before filing taxes should be the first step.
Gather the records of any business transactions from the previous year— everything from expenses to earnings. Many agencies and organizations use Xero or another program to help keep these transactions organized. Tracking your spending will also determine which deductions can be applied to tax filing. Donations, travel expenses, and sometimes even those yearly office parties can be written off.
All businesses are required to report earnings to the IRS and need to fill out forms depending on the type of company or organization that is filing. Sole proprietorships can account for income and expenses using a Schedule C form. Sole owners of an LLC can also use the Schedule C attachment. C Corporations, S Corporations, or LLCs registering as S Corporations, need to prepare a separate tax return using Form 1120.
Tax forms also have varying deadlines to keep in mind. Schedule C follow the typical tax deadline, but Form 1120 may need to be filed earlier and separate from personal income tax returns. Make sure all other forms are ready to be filled out and that employee paperwork is up to date.
Another beneficial consideration would be to research eligibility for tax credits. Tax credits are different from deductibles in that deductibles reduce taxable income while credits are applied to the tax itself. There are a wide variety of tax credits, so research which ones are available ahead of time.
For a list of forms to complete for each tax credit, click here.
Reduction of Identity Theft
Part of being prepared means getting ahead of the game and filing taxes early. Cybercrime and identity theft are increasingly becoming a prevalent concern. Filing taxes as early as possible increases the chance of avoiding fraudulent activity. Small businesses, branded companies, and outsourced agencies are no exception to the rule and are just as much at risk as anyone else.
Business identity theft actually has a greater appeal, especially for experienced criminals. One source says, “Any type of business or organization of any size or legal structure, including sole-proprietorships, partnerships, LLCs, trusts, non-profits, municipalities and county governments, school districts, and corporations - are all targets of business identity theft.” Filing taxes early can help regulate and detour such activity.
Filing taxes early additionally allows time to fix any errors or resolve any disputes that might come up. It allows for any money owed to the IRS to be paid in a timely manner and for funds owed back to the proprietor to be deposited as quickly as possible.
Common errors include choosing the wrong filing status option, incorrect information and filling out incorrect forms. It is important to know exactly what forms need to be completed for the specific business or organization. In short, getting a jump-start means less worry and as an added bonus, quicker returns.
Taxes don’t have to be the annual stressor. If you remain organized, have a trustworthy accountant, and file as early as possible, then taxes can be a breeze!