No matter what kind of business you run, you need to deal with taxes every spring. But before you start filing business taxes this year, make sure you know the answers to the common questions many small business owners have.
Do I Have to File? YES! You always need to file your taxes if you own a business. Even if you didn't make a profit, the IRS wants you to report your earnings and losses through an official tax return.
Should I Do My Own Taxes? While it's possible, it may not be the best move. You already have a full-time job running and managing your business, and your tax situation is complicated as a business owner. Working with a certified public accountant can help you ensure your taxes are completed correctly, on time and in a way that allows you to make the most of deductions and credits that you may not even know about. Here's a deeper look at this issue.
What Counts as a Business Expense? What counts as a deductible expense? The IRS broadly categorizes business expenses as the costs of carrying on a trade or business when you are trying to make a profit. That covers a huge amount of expenses, but it doesn't include things like business attire, fines or the cost of commuting between your home and place of business. Defining qualifying expenses gets tricky, because what may count for one type of business could fail to hold up for another. Keep careful records of every business transaction you make and review them with your CPA before filing business taxes. They'll be able to help you deduct what qualifies under IRS guidelines.
How Can I Lower My Taxable Income? The bad news is that you can't deduct that parking ticket to lower the amount of income you need to pay taxes on. The good news is there are other actions you can take to lower your taxable earnings as a small business owner:
- Use accountable plans to reimburse your employees for costs.
- Contribute to a tax-deferred retirement plan for small businesses, like a SIMPLE or SEP IRA.
- Consider restructuring your business as you go (like moving from an LLC to a C corporation).
Can I Get an Extension? Paying taxes as a small business owner is much more complicated than paying as a W2 employee. If you're not prepared to file (or pay taxes) by the April deadline, then yes, you can get an extension. You can file for one through the IRS.
Don't Forget to Ask These Critical Questions About Filing Business Taxes This Year Every business is unique, and even after the basic questions are answered you may realize your needs are different. Here are a few additional questions to consider asking your CPA before you file:
- What changes in this year's tax code will impact me?
- What is a capital expense, and did I have any?
- How does my business tax return impact my personal one?
- How can I make filing business taxes next year easier to do?
Don't stop with this list; keep asking questions as they arise. No one cares more about your business' financial health than you, so it pays to stay proactive.
This information is only provided for general informational purposes, and should not be considered as offering individualized tax advice. Tax laws are complex; please consult your tax advisor on specific issues related to your tax situation.