Congratulations on starting your own business and running it for a whole year. There are many great things about being a business owner. However, filing a tax returns is not one of them. But, it’s important to file tax returns properly especially if you want to use start up loans to scale up your business in the future.
You also don’t want to open yourself up for an audit or leave money on the table when it comes to filing a tax returns. Therefore, make sure that you have filed all forms correctly, itemized each write-off and deduction, and have receipts handy just in case of an audit.
Regardless of the size or structure of your business, here are some useful tips to help you file tax returns after your first year in business.
Keep Personal and Business Expenses Separate
The line between personal and business expenses should not be blurred. This is particularly important if you are a sole proprietor. Taking a little upfront care can help you avoid this problem. The business should always be kept as a separate entity for the sake of your tax return. When you mix personal and business expenses, your venture looks like a hobby. This also disallows deductions of business expenses from your income while increasing tax liability. Therefore, have separate credit cards, bank accounts, and accounting statements for your business.
Use the Right Forms
Know and use the right tax forms depending on the structure of your business. Since this is your first year in business, use the New Business taxes form. This means using forms that you have most likely never used or seen before. Though these forms might be unfamiliar, understand that you can’t interchange them.
Minimize Taxable Income
To minimize taxable income, take advantage of business tax deductions. This will lower your tax penalty while putting more money into your business. But, there are right ways of doing this. Activities like fraud and tax evasion are illegal. Business-related expenses are obvious deductions. Ordinary and necessary expenses of a reasonable amount are deductible.
Common business expenses which are deductible include:
- Advertising costs
- Banking fees
- Software purchase
- Asset depreciation
You may overlook some deductions when running a small business. However, doing this can cost your business more in the long run.
Collect Business Documents
Just like when applying for start-up loans, you can’t avoid paperwork when filing new business tax returns. There are many documents and forms you will need to file tax returns. But, even if you have an accountant, make sure that you have the right documents to make the process of filing tax returns seamless. For instance, if you have employees, give them documentation to file their taxes and send the forms to the taxman yourself. If you avail the documents late or fail to get them at all, you can be slapped with a hefty fine.
Keep Time
To avoid raising suspicions and incurring fines, always file your business tax returns in a timely manner. Obviously, you should monitor and keep to deadlines to submit tax information. Bear in mind the fact that the taxman can move dates for filing returns. Therefore, keep yourself updated on the set deadlines every year. Also, know when to make quarterly payments. Essentially, mark all tax-related deadlines in your calendar.
Request an Extension if Necessary
Let’s face it- things happen even to the most diligent people making it hard for them to meet deadlines. Even with the best intentions to submit all tax information before the deadline elapses, you might realise that you won’t make it. If you don’t meet the dreaded deadline, you may face costly penalties.
However, you can file for an extension to allow your business a little more time to get everything in order, if you have a genuine reason for needing the extension such as being in the hospital, or the death of a close family member.
Classify Office Equipment Properly
Tax Return – Inexperienced first-time business tax filers get tripped up when trying to categorize expenses such as supplies or equipment. Anything used during a financial year like pens, printer papers, and printer ink are categorized as supplies. Capital expenditures are categorized as equipment. These are higher-value items and them last longer than a year. They include office furniture, software, computers, and servers.
Some of the new equipment expenses can be written off in a year instead of taking their depreciation over several years. Add up software, computers, and other equipment acquired by your business in the ending year to get more deductions.
Deduct Insurance Costs
Business insurance is an important consideration even for start-up loans lenders. What’s more, insurance premiums that relate to malpractice, liability, property, and workers’ compensation are deductible business expenses. Life insurance and commercial vehicle insurance premiums can be deductibles too. However, the rules differ on the basis of business type.
Sole proprietorships, Corporations, and partnerships can also deduct dental and medical insurance premiums paid for oneself, spouse, or dependents.
Review Inventory and Accounts Receivable Balances
For collectability, review accounts receivable before you close annual business books. Potential uncollectible accounts ought to be written off because they reduce business revenue. Thus, they become a business tax liability. If your business has in-process, raw, or finished inventory, perform a value review for marketability. Write down unusable or obsolete inventory and scrap value to lower revenues while lowering the business tax bill.
Get Help
Before you start working on your business digits, decide how you want to tackle your business tax returns filing process. Can you do everything yourself or do you need professional assistance? It’s obviously possible to file tax returns without help especially if you have organized business records.
However, the tax code can be complicated. And because it’s your first year of filing tax returns as a business owner, having a professional help you through the process can make you feel more comfortable. You may be wary of hiring an accountant to help with the process due to the involved fee. However, accounting fees are tax-deductible.
Filing tax returns may not feature in your entrepreneurial dreams. However, you need to file your business tax returns right especially if you intend to take out start-up loans. Leverage these tips to make a filing in tax returns after your first year in the business easy.