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A Beginner’s Guide to LLC Taxation

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Understanding and making the most out of LLC tax could be challenging for most small to medium business owners. Taxation is a key component of any business’s success, and understanding this subject could make a business more successful. Moreover, finding a reliable LLC tax accountant, how to go about filing LLC tax, how to maximize LLC tax benefits, or understanding the tax benefits of an LLC is part of a complex tax process that many small to medium business owners ought to know to help them navigate LLC taxation. Also, tax rates vary from state to state, so one must be aware of this fact to decide which state to register their LLC. Hence, this blog aims to demystify the LLC taxation process, providing a comprehensive overview of LLC taxation, the benefits involved, and how a partnership with a seasoned LLC tax accountant can be a game-changer for your business.

How Are LLCs Treated for Income Tax Purposes?

An LLC can be considered a pass-through entity, meaning profits and losses flow through to the personal tax returns of its members. In other words, it avoids double taxation, a characteristic of corporations that reveals the fact of being levied by two levels: from the company and the stockholders. Moreover, the LLC itself is not subject to federal income tax. In this case, the members would state the LLC’s profits or losses in their tax returns, and the taxes would be sent back to the government through the individual rates of the income tax.

How Are Single-Member LLCs Taxed?

Consequently, the IRS regards single-member LLCs as disregarded entities for federal income tax purposes. This implies that the business does not separately file its taxes; the business owner files the income realized and any expenses from Schedule C from the business on their personal return, and the self-employment tax applies to the defined net earnings.

I Have a Multi-Member LLC. How Will We Be Taxed?

By default, a multi-member LLC is classified as a partnership for income tax purposes. So, the share of profit and loss will be distributed to the members as stated in the operating agreement. The LLC has no income tax liability because the profit or loss allocated is included in the member’s personal tax return. However, as in the case of a single-member LLC, the person will have to pay self-employment taxes on their profit share.

How Are LLCs Taxed as Corporations?

Moreover, LLCs offer the advantage of being taxed as an S or C corporation. In either case, such flexibility can provide assistance that is either needed depending on some financial goal for your business or the lowest rate to be interested in for those items, which might not be available with most other entities.

C-Corporations

An LLC can file an election with the IRS to treat it as a C-Corporation for income tax by filing Form 8832. The justification for this is that a C-Corporation is liable for corporate-style tax at the business level, which can be a form of double taxation. Nevertheless, the benefits associated with C-Corporations include little personal liability and the business can retain business earnings.

S-Corporations

On the other hand, LLCs may also file IRS Form 2553 to opt for taxation as a corporation. Similar to LLC, S Corporation is also a pass-through entity but with stricter eligibility. The election will allow income to be distributed and not as salary to the members; hence, there might be a taxation saving.

Am I Employed or Self-Employed Under an LLC?

Typically, LLC members are considered self-employed for federal income tax purposes and are subject to paying self-employment tax on earnings from the LLC’s profits, dealing in the reporting subchapter K income. Some of these members, if they manage the LLC where they have involvement in the management of the LLC, will be considered employees for payroll tax and might get some, but not all, of the same benefits available to corporate employees and retirement plans.

LLC Tax Rates by State

The tax treatment of an LLC varies from state to state. Some states impose a franchise or privilege tax, while others apply a state income tax rate to an LLC. Therefore, an LLC owner should understand the specific tax rate and regulations by state to consider where to form or operate his business.

How Can Xendoo Help with LLC Taxes?

Xendoo specializes in providing expert tax and financial solutions tailored to the needs of small businesses, including LLCs. Our bookkeeping, catch-up service, tax, and CFO are full-service in that they simplify everything that has to do with the financial management of business owners. It is such a pinpoint service whereby a professional team of expert bookkeepers and CPAs save a client’s money while offering clean books. Whether you need assistance filing an LLC’s taxes, seek a business structure for maximum tax advantages, or get current with your annual city/village/state LLC taxes, we’re here for you. We seamlessly integrate with the world’s leading accounting software to offer you personalized monthly reports that furnish unwavering precision and unparalleled customer support, second to none in its class, helping you make well-informed decisions from your data about just how healthy and growing your business could be.

Conclusion

Navigating the multifaceted world of LLC taxation, including finding a reliable LC tax accountant, learning how to file taxes for an LLC, and maximizing the tax benefits of an LLC, can be challenging for small-to-medium-sized business owners. With the support of Xendoo’s expert tax services, you can confidently navigate the complexities of LLC taxation, ensuring your business remains compliant and financially optimized. In a nutshell, understanding LLC taxation comprises understanding how to file LLC taxes and acknowledge LLC tax benefits, knowing what the LLC tax expectations are, understanding the LLC tax rate by state, LLC requirements on a state level, disclosures aimed at establishing the most friendly tax state in America one can go to while forming an LLC, the lowest that taxes LLCs, and also annual tax requirements for LLCs by state. Speak with a team member from Xendoo.com today to explore how we can support your business’s tax needs and contribute to your success.

7 Last-Minute Tax Tips: Quick Actions Small Business Owners Can Take to Meet the April 15th Deadline

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tax tips for small businesses

As the April 15th tax deadline approaches, small business owners are on a tight schedule to get their financial books in order and finalize their tax filings. Timely tax preparation ensures compliance with the Internal Revenue Service (IRS) and can maximize potential tax savings. This becomes a critical period in business, and specific strategic actions must be taken so that small businesses remain compliant, maximize returns, and minimize liabilities when filing taxes. This article provides seven actionable tax tips to help small business owners navigate the crunch time effectively.

Organizing Financial Records

Gathering Necessary Documents and Receipts

As one of the basics for filing taxes, small businesses must gather all pertinent financial documents, such as invoices, bank statements, expense receipts, and payroll details. Gathering these documents helps small businesses aggregate and systemize these records to afford a vast, complete record base for use in tax preparation and filing.

Utilizing Accounting Software for Efficient Record-Keeping

Accounting software simplifies record-keeping, facilitating easier tax preparation and real-time financial tracking. Nowadays, small business owners are privileged to have several programs dedicated to clientele and account record-keeping management. Up-to-date accounting software helps your business to integrate seamlessly with other leading accounting software platforms. It offers you direct access to ensure your business’s financial data is accurate and up to date for filing taxes. Thanks to such tools, financial data can be structured and sorted according to the classification rules in preparation for tax filing.

Creating a Checklist to Ensure Nothing Is Overlooked

For small business owners, a broad checklist will guard against the usual omissions and assure the inclusion of all required documents and information, which are requisites during the preparation to file taxes. A checklist should comprise the fields of income, deductible expenses, tax documents, and any specific information related to their unique business type. At the end of this financial review, the business owner should have a checklist covering all financial records.

Maximizing Deductions and Credits

Identifying Eligible Business Expenses

Understanding what makes up a deductible business expense helps ensure small businesses make the most of tax-saving opportunities. From home computers and vehicles to social networking-related expenditures to staff and benefits, all business owners should be careful to keep relevant documentation as this will enable them to use the deduction system to the utmost extent. Identifying eligible business expenses helps small business owners take advantage of all possible deductions.

Exploring Available Tax Deductions and Credits for Small Businesses

The tax code gives an array of deductions and credits meant to support small businesses. Alongside typical business expenses, SME proprietors must check for available pertinent deductions to their sector. For instance, the Small Business Health Care Tax Credit, the Research and Development Tax Credit, and several state and local incentives are all geared towards the same purpose: promoting small businesses. We guide you to strategically employ the most recent tax benefits to lower your taxable income and increase your tax savings. At Xendoo, we also keep up with the latest tax benefits to ensure that businesses signed with us get the most out of the benefits.

Strategizing to Maximize Tax Savings

Strategic tax planning is essential to optimizing small business outcomes. With a thorough knowledge of eligibility for deductions and credits, entrepreneurs can now employ tactics that help them minimize tax liability. This could involve reformatting certain parts of the business systems or making good use of the timing of investments and purchases by aligning them with tax compliance. Our bookkeeping services include expert professional advice on the structure of transactions and operations to maximize available benefits and opportunities by saving more on your tax bill.

Navigating Tax Law Changes

Highlighting Recent Changes in Tax Laws Affecting Small Businesses

Tax laws are constantly changing, and they significantly affect small businesses. Significant updates and modifications are made to initial tax laws as often as monthly. Business owners should consider keeping themselves updated with recent amendments that may frame their filing of return of income, which otherwise can be detrimental to the company due to delayed payments and, in some extreme cases, penalties. Let us help you stay updated with all the changes to ensure your business stays compliant and takes advantage of new opportunities the tax law updates might create.

Understanding Implications and Opportunities Presented by Tax Law Updates

Effective tax planning considers the implications and impacts of the changes in tax laws and their applicability. Each tax legislation change has pros and cons because of its diverse impacts. Both partnerships and LLCs need to be fully informed about these impacts regardless. These changes bring about essential tax savings if carefully considered. Our book-handling services provide you as a business owner with expert analysis on how changes in tax laws impact your business and alert you to opportunities that will see new provisions for tax savings.

Consulting with a Tax Professional for Personalized Guidance

Most tax law changes require interpretation. Accounting for complicated tax laws and the high rate of environmental changes leaves small companies with only one option: to reach out to experienced tax lawyers or accountants. These professional consultants can offer personalized advice and tailor it to the specific needs and circumstances of the business so that any unclaimed deductions and credits are discouraged and errors are avoided. Our people-first mentality ensures you receive personalized attention and expert guidance throughout your financial journey. We share your passion and your dedication to making your dreams a reality inspires us. That’s why we’re committed to providing you with the financial visibility and support you need to thrive. We build meaningful relationships with our clients and understand their needs.

Utilizing Technology for Efficiency

Overview of Tax Preparation Software Options

The right tax preparation software can greatly increase efficiency and accuracy during tax filing. In the digital era, small business owners have many tax preparation software applications that can facilitate filing by shortening the time to prepare the returns. Be it user-friendly tools designed specifically for small businesses or more comprehensive solutions covering complex tax scenarios, these tools make tax preparation a more straightforward job driving the sector’s development. Based on your business’s needs, we have bookkeeping and accounting solutions that best match your business model and streamline tax filing.

Streamlining Tax Filing Processes with Digital Tools

Digital tools help automate many stages of tax preparations, from calculations to final submission. This effort reduces time and creates a lower risk of human mistakes since accuracy is considered higher when filing taxes. With the help of the best technology, Xendoo.com is there to make your tax filing process a breeze, assure you that you save time, and reduce the possibility of making a mistake.

Ensuring Data Security and Accuracy When Using Technology

In digital tax preparation, prime concentration is paid toward data security and accuracy. Although technology, in some cases, may provide support in tax preparation, and there are some instances when using data digital tools is indispensable, it’s equally important to keep in mind the necessity for the security of the data and accuracy in using the digital tools. Small business owners need to use due diligence in choosing a software provider based on how the company ensures the data stored on their platforms are secure. at Xendoo.com uses advanced security measures to protect your financial data and ensure that your tax filing data is safe and accurate. Our entry systems enable small business owners to double-check their calculations and entries when inputting information to ensure the accuracy of their financial records.

Handling Contractor Forms and Other Documents

Collecting and Verifying 1099 Forms from Contractors

Proper management of the 1099 forms is crucial to accurate tax reports. Small businesses dealing with independent contractors must be cautious; they must collect and review the 1099 forms from each contractor before the year-end tax deadline. These forms provide crucial details about grants whose payments were given to private contractors, and if a mistake is made, it may result in penalties or audits. Small firms could be income earners from various origins, i.e., sales, services, investments, and properties that can be rented. Our bookkeeping services help collect, verify, and organize 1099 forms from your contractors to help achieve compliant and accurate payment reporting to the contractor.

Reporting Income Accurately from Various Sources

Accurate tax filing means accurately reporting income from different sources. It is crucial to meet all income-earning sources to avoid incurring fines and comply with tax laws. Keeping journal entries up to date and comparing individual credit memos to the financials is critical to correct income reporting. Accuracy must be maintained in reporting, thereby minimizing the chances of errors and penalties.

Tips for Addressing Discrepancies or Missing Information

Small business owners must attend immediately to the discrepancies or missing information resulting from contractor forms or other documents. This may involve contacting subcontractors for explanations, private consultation with tax specialists, or appeals to the authority of relevant government agencies to receive the correct and timely reporting. Xendoo’s bookkeeping services include the expertise you need to correct discrepancies or fill in missing information to ensure your tax filings are complete and accurate. We provide the financial visibility and support small businesses need to thrive and scale. Let us handle the financial burden so you can focus on what matters most – running your business and achieving your goals.

Avoiding Common Tax Mistakes

Identifying and Avoiding Common Errors in Tax Filing

Due to the intricacy and probability of compounding errors with this process, filing taxes has often been a difficult task for small businesses to deal with. Succinctly stated, the common pitfalls involve underestimated cost of living, forgetting to inform about income sources, neglecting required forms, and misunderstanding of tax laws. These are common mistakes that may lead you to an audit or penalty. Xendoo.com will help you avoid such pitfalls and, more so, help you be sure that your tax filing is error-proof.

Double-Checking Calculations and Entries for Accuracy

All business owners want to avoid mistakes by double-checking all calculations, entries, and documents; that is why they should check everything before filing their tax returns. One preparation step is to review the financial statements, check deductions and credits, and ensure that all incomes and expenditures are reported appropriately. Small business owners need to ensure that their business records are accurate down to the last decimal, especially when it comes to entered data and calculated entries.

Learning from Past Mistakes to Improve Future Tax Filings

Analyzing previous tax filing processes and pinpointing mistakes can be crucial steps for small business owners that will allow them to enhance their capabilities. By studying past misstatements and trying to improve the trajectory to rectify them, any future filings will be accessible, and the chance of mistakes being made will be significantly reduced. From analyzing records, we at Xendoo offer insights that would prevent past financial record-keeping mistakes from happening; this progressively improves your filing.

Exploring Extensions and Estimated Tax Payments

Understanding the Option to File for a Tax Extension

It does add some time to your tax preparation, but it can do wonders to ensure things are correct. Often, small business owners are granted an extension on their taxes when there is insufficient time to collect all the requisite information or finalize filing the tax return. This can erase the panicky situation for the last minute and not push filers to submit hurried or faulty filings, which can attract penalties and errors. However, small business owners need to ensure that the extension pushes the filing due date rather than the extent of the payment deadlines. Xendoo.com can walk with you on how to file an extension and ensure you know what it means and what it takes.

Making Estimated Tax Payments to Avoid Penalties

Small business owners who anticipate owing taxes are advised to consider making estimated tax payments to prevent cheques or interest charges. If the pre-bid meeting or communication is not done correctly, the procurement officer can be liable for heavy fines, even with the extension sought. Calculate and pay estimated tax so that penalties are withheld with the extension. We offer you advice on making those payments and remaining in a positive standing with your business.

Factors to Consider Before Opting for an Extension or Estimated Payments

It is vital to consider whether filing an extension or paying estimated payments would be better for your business. Before deciding to get an extension or making the estimated tax payments, small business people should apply critical thinking only to their particular situation. For instance, whether they have cash flow, the tax returns they file, and whether they need all the necessary documents. Seeking tax advice from professionals not only helps a taxpayer to make the right choice but also to understand various tax implications.

Navigating the tax season requires diligence, strategic planning, and support. By favorable implementation of the seven top last-minute tax strategies, small business owners will confidently navigate the intricacies of tax filing while ensuring compliance and maximizing potential savings. Taking advantage of guidance from an experienced tax advisor is a necessary process that will help reconstruct the tax code and its regulation changes. Remember, the goal is not just to meet the deadline but to do so in a way that benefits your business’s financial health and future growth prospects.

About Xendoo

We share your passion for small businesses and are inspired by your dedication to making your dreams a reality. That’s why we’re committed to providing you with the financial visibility and support you need to thrive.

More Than Just Numbers

It’s more than simply crunching numbers. It’s about building meaningful relationships with our clients and understanding their needs. Our people-first mentality ensures you receive personalized attention and expert guidance throughout your financial journey.

A One-Stop Solution

Xendoo offers a comprehensive suite of services, including:

  • Full-service bookkeeping and accounting team to free up your time and resources.
  • Hassle-free tax preparation and filing
  • Fractional CFO Services to work with you on a roadmap of future growth
  • A dashboard that provides real-time financial insights

Passionate about your success? Xendoo is, too. We provide the financial visibility and support small businesses need to thrive and scale. Let us handle the financial burden so you can focus on what matters most – running your business and achieving your goals.

Contact Xendoo today and discover how we can give you time back to grow your business.

Tax Preparation for E-commerce Businesses

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In the fast-paced world of e-commerce, success hinges on the quality of products and services and adept financial management. With tax season approaching, maintaining accurate financial records becomes imperative. With potentially complicated regulations and potential deductions, e-commerce entrepreneurs face unique challenges in tax preparation. This comprehensive guide aims to demystify the process, offering tailored insights and strategies to navigate the intricacies of tax compliance and optimization. From understanding the nuances of e-commerce taxation to harnessing technology for streamlined accounting, every aspect of tax preparation is explored to empower businesses to maximize their financial efficiency. As the digital marketplace continues to evolve, staying ahead demands a proactive approach to financial management, making this guide an indispensable resource for e-commerce ventures striving for sustained growth and success.

Understanding E-commerce Accounting Basics

Understanding the basics of e-commerce accounting is fundamental before diving into specialized areas like tax preparation for e-commerce businesses. Online enterprises face distinctive challenges, including fluctuating sales volumes, complex inventory management across multiple platforms, and diverse payment gateways – dynamics beyond traditional brick-and-mortar establishments’ scope. Implementing a robust accounting system that seamlessly integrates with the e-commerce platform is crucial. This integration provides invaluable insights into the business’s financial health and streamlines the tax preparation process. Real-time sales data, inventory tracking, and transaction details, all enabled by a comprehensive e-commerce accounting system, are essential components that aid in accurate tax reporting and compliance. By embracing the nuances of e-commerce accounting and implementing systems that facilitate efficient financial management, businesses can lay a strong foundation for effective tax preparation, ensuring adherence to legal requirements and promoting sound financial decision-making within the digital marketplace.

Navigating Tax Regulations for E-commerce Ventures

Navigating the realm of e-commerce taxation entails grappling with a multifaceted landscape governed by various local, state, and federal regulations. Staying abreast of evolving tax laws impacting e-commerce operations is vital to avoiding costly penalties and audits. The complexities range from determining sales tax nexus to local or international tax obligations, making it essential for e-commerce entrepreneurs to seek guidance from qualified tax professionals. Such professionals possess the expertise to offer invaluable insights into the intricacies of e-commerce taxation, ensuring businesses remain compliant while effectively navigating the complexities of the evolving tax landscape. By drawing on their specialized knowledge, e-commerce ventures can mitigate risks, proactively address tax-related challenges, safeguard financial stability, and promote sustained growth within the digital marketplace. Informed decision-making rooted in the expertise of tax professionals thus becomes a critical asset in fortifying e-commerce ventures against potential taxation pitfalls.

Maximizing Deductions and Credits

Owning an e-commerce business presents the advantage of accessing a myriad of deductions and credits to offset taxable income. Diligent record-keeping is instrumental in harnessing these benefits, encompassing expenses related to website development, digital marketing, and shipping and fulfillment costs. Leveraging such deductions and credits allows e-commerce businesses to maximize tax savings, enhancing financial health and operational efficiency. Furthermore, embracing tax incentives like the Research & Development Tax Credit can provide e-commerce businesses a competitive edge while reducing tax liabilities. Businesses can optimize their tax position by strategically identifying and capitalizing on applicable deductions and credits, effectively reducing their tax burden and enhancing their overall financial standing within the digital marketplace.

Harnessing Technology for Seamless Tax Preparation

Advancements in financial technology have revolutionized the landscape of tax preparation for e-commerce businesses, sparing entrepreneurs the arduous task of sifting through mountains of receipts and spreadsheets. The digital age offers access to tools and software explicitly designed to streamline tax preparation processes. Cloud-based accounting platforms like QuickBooks Online are instrumental in aggregating and organizing financial data, while specialized e-commerce tax software such as TaxJar caters to the unique tax requirements of online businesses. Harnessing these technological resources saves time, minimizes errors, boosts efficiency, and provides business owners with accurate insights into their financial health. Implementing contemporary technology does more than simplify tax preparation; it empowers businesses to make informed decisions and promotes sustained growth within the competitive e-commerce landscape. By embracing these digital solutions, e-commerce ventures can ensure meticulous tax compliance while freeing resources to focus on core business aspects, ultimately fostering operational efficiency and financial stability within the digital marketplace.

Proactive Planning for Future Success

Strategic tax planning extends beyond mere compliance, playing a pivotal role in the long-term success of e-commerce ventures. By proactively forecasting cash flow, analyzing financial metrics, and projecting tax liabilities, entrepreneurs can make informed decisions that optimize profitability and fuel sustained growth. Through regular consultations with a tax advisor, businesses gain invaluable insights into tailor-made, tax-efficient strategies aligned with the distinct needs of e-commerce enterprises. Proactive planning facilitates the optimization of tax liabilities and supports effective financial decision-making, positioning businesses for resilience and growth within the digital marketplace. By leveraging strategic tax planning, e-commerce businesses can harness their financial resources more effectively, fortify their position amidst evolving taxation landscapes, and pave the way for sustained success and innovation in the competitive e-commerce sphere. Embracing proactive tax planning thus serves as a proactive investment in the future financial health and stability of e-commerce ventures.

Conclusion

Navigating the nuances of tax preparation for e-commerce businesses may seem daunting, yet with the right guidance and proactive planning, it becomes entirely manageable. Mastering e-commerce accounting basics, ensuring compliance with tax regulations, maximizing deductions, harnessing technology, and implementing strategic planning are pivotal steps toward positioning businesses for sustained success within the ever-evolving digital landscape. When it comes to taxes, knowledge is power – so it’s imperative to equip yourself accordingly and pave the way for a prosperous future. For comprehensive support in tax preparation and e-commerce accounting, consider leveraging the expertise of professionals at Xendoo.com. Xendoo’s knowledge and experience, Xendoo.com provides tailored solutions to optimize tax efficiency and financial management for e-commerce businesses, ensuring sustained growth and operational stability within the digital marketplace.

How to Prepare Your Business for Tax Time

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A broker goes over his taxes for his real estate business.

A broker goes over his taxes for his real estate business.

Planning ahead is always a good business strategy, especially when it comes to taxes. Adopting a proactive strategy can help you stay ahead of business tax filing deadlines, avoiding the rush and the headache during tax season! 

To help business owners prepare their tax, we’ve prepared a business tax filing guide to walk you through the process.

Deadlines

Any good business tax filing guide should start with the various filing deadlines associated with taxes for businesses. For a detailed explanation of these dates, you can check out this helpful article from Karen Doyle. 

Here, we’ll summarize the need-to-know facts about various filing deadlines.

Income Tax for Individuals, Sole Proprietors, and Single-Owner LLCs

Individual taxpayers, sole proprietors, and single-owner LLCs must make estimated tax payments on a quarterly basis and file an annual income tax return. 

The filing deadline is April 15. Deadlines for state income tax can vary, so your state’s tax collection authority can be a helpful tax guide for local deadlines.

2024 Tax Filing Deadlines for Estimated Income Tax

Businesses and self-employed individuals must submit quarterly estimated tax payments according to the following schedule:

  • First Quarter: April 15
  • Second Quarter: June 17
  • Third Quarter: September 16
  • Fourth Quarter: January 15, 2025

Estimated payments can be calculated using Form 1120-W.

Income Tax Returns for Partnerships and S Corporations

S Corporations and partnerships must file a return by March 15, 2024. 

These organizations must generate a Schedule K-1 earnings statement for each partner or organization. The following forms will be needed to generate a Schedule K-1:

  • Partnerships: Form 1065
  • S Corporations: 1120S

You may file for a six-month extension by submitting Form 7004. You will also need to submit a deposit equal to the amount of tax owed. The return will be due on September 16, including any interest and penalties.

Corporate Income Tax Returns

Companies must submit a corporate income tax return by April 15, 2024. Corporations can request a six-month extension by filing Form 7004, though they will also be required to submit a deposit for their estimated taxes.

If your business requests an extension, the new deadline will be October 15, 2024. This will also be the deadline for your first quarterly tax payment. 

If you do decide to request an extension, you’ll need to be prepared to pay your annual income tax from 2023, your quarterly tax payments, and any penalties or interest no later than October 15, 2024.

Employment Tax Filings for Wages and Non-Employee Compensation

Employers must distribute physical copies of tax forms by January 31 to any individual who received cash payments that include:

  • Wages
  • Non-employee compensation
  • Dividends
  • Royalties
  • Profit-sharing distributions

Electronic copies may be submitted instead, but only with the consent of the employee. 

Electronic copies must also be submitted to the Social Security Administration by the same date. The following documents are subject to the January 31 deadline:

  • Forms 1097, 1098 and 1099
  • Forms 3921 and 3922
  • Forms W-2 and W-2G

Small businesses must submit corresponding copies to the IRS by February 28. Keep in mind that you may also be required to submit the following forms:

  • Form 1096, Annual Summary and Transmittal of U.S. Information Returns
  • Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips

You may be able to receive an extension for filing electronically, though this varies by year.

2024 Payroll Tax Deposit and Form 941 Due Dates

Small businesses must file Form 941, Employer’s Quarterly Federal Tax Return, according to the following schedule:

  • April 30
  • July 31
  • October 31
  • January 31

The following forms are due on the last business day of the first month after the end of each calendar year:

  • Form 940, Employer’s Annual Federal Unemployment (FUTA) Return
  • Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees
  • Form 944, Employer’s Annual Federal Tax Return
  • Form 945, Annual Return of Withheld Federal Income Tax

In 2022, this deadline falls on Monday, January 31.

Federal Excise Tax Requirements for Small Businesses

Some industries are required to pay excise taxes. Retailers, manufacturers, travel services, and communication companies file Form 720, the Quarterly Federal Excise Tax Return, on the following dates:

  • April 30
  • July 31
  • October 31
  • January 31, 2025

Form 11-C, Occupational Tax and Registration Return for Wagering is used for businesses that accept bets. This form must be submitted before accepting any bets. Form 730 must be submitted monthly.

Form 2290 is used for businesses that rely on heavy highway vehicles. This form must be filed by the last day of the vehicle’s first month of use. After this, the excise tax period runs between July 1 and June 30.

Tips

What can you do to adopt a proactive strategy when it comes to your business tax filings? Our business tax filing guide offers three tips that can help you be prepared for next year’s tax season.

Make Sure Your Books Are Caught Up

Keeping your books up-to-date is one of the most important things you can do for your business. The further you get behind in your bookkeeping, the harder it will be to stay current with your financial and legal obligations — that can quickly make tax season a nightmare!

Many small business owners cut corners by handling their own books, only to later discover that they’re in over their heads. Sound familiar? Don’t worry; you’re not the first. 

Outsourcing these needs to a professional bookkeeping service can help you get caught up while keeping your business running smoothly all year round.

Gather Important Documents

You’ll also want to establish an organizational system to gather and preserve your important financial documents. We’ve already mentioned some of these earlier on this business tax filing guide, but the most important documents include: 

  • W2s from employers
  • 1099s from contractors or miscellaneous income
  • Documents showing itemized expenses (medical, educational, child care, etc.)
  • Statements regarding investments
  • Statements regarding mortgage interest payments
  • Receipts from charitable donations
  • Receipts for deductible expenses

These documents will be essential for calculating the federal income taxes that you owe. 

Plan Ahead

Our business tax filing guide is based on a key principle: it’s better to be proactive than reactive. Not only does that mean keeping deadlines on your company calendar, but it also means finding creative ways to handle your tax debts each year. 

For instance, you might plan a series of charitable donations that can be deducted from your income each year. You might also plan some type of investment or savings account that can be used to pay your tax debts. 

Consulting a tax preparation service can help you to take advantage of every available deduction, which can lower your total tax payments for a given year.

Xendoo, Offering Proactive Solutions for Your Business

At Xendoo, we understand the demanding nature of modern businesses. We also understand that since the services of a CPA cost roughly $400 an hour, it can be challenging to stay up-to-date on your books. That’s why we’re committed to providing top-quality accounting and bookkeeping services that won’t break your budget. 

When you partner with Xendoo, you’ll be able to rely on industry-leading services that include tax preparation, bookkeeping, and more, thanks to our experienced team of professionals. 

Want to learn more? Reach out today, and we can start you and your business on the path to success.

LLC vs. S corp: Which is right for your business and taxes? 

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llc vs s corp

One of the most important decisions for business owners is which type of business entity to form. Your business structure impacts your tax savings, accounting practices, and how you pay yourself. 

Examples of business structures include: 

  • Sole proprietorship
  • Partnership
  • Limited liability company (LLC)
  • S corporation (S corp)
  • C corporation (C corp)

Businesses often weigh the pros and cons of forming an LLC vs. S corp. Xendoo does online accounting, bookkeeping, and taxes for businesses, so it’s a question we answer frequently. 

In this article, we’ll explore the differences between an LLC vs. S corp, and help you decide which structure is best for your business.

Why your business structure matters

Choosing the right business entity is crucial for several reasons, including:

  • Liability protection: Some business types provide legal protection for your personal assets, while others don’t. For example, sole proprietorships are unincorporated businesses without personal liability protection. A sole proprietor is responsible for the business’s debts and liabilities.
  • How you pay yourself: With some LLCs, you can pay yourself by withdrawing funds from an owner’s draw. In others (like corporations), you’ll need to pay yourself a salary.
  • Tax classification: Your structure impacts how you file taxes, the amount of taxes you owe, and which tax deductions you can claim.
  • Ability to raise capital: Some entity types have many options for raising capital, while others are very limited.

What’s the difference between LLC vs S corp?

Overall, LLCs have a more flexible structure, while S corps can save money on taxes in the long run.

The biggest differences between LLCs and S corps are ownership, taxes, and management structure. Here’s a breakdown of each.

  LLC S corp
Ownership No restrictions on the number of members or their citizenship status. Must be 18 years or older. Limited to 100 shareholders who must be US citizens or resident aliens.
Taxes Taxed as a pass-through entity. Subject to self-employment taxes. Taxed as a pass-through entity. Saves on payroll taxes by paying owners a salary and distributions.
Management structure May choose between member-managed or manager-managed Managed by shareholders and officers 
Reporting Most states require filing annual reports along with an annual reporting fee or tax More complex reporting requirements than LLCs. Must file yearly reports and documentation with the state

Below, we’ll look at LLCs and S corps in more detail to help you decide which is the best option for your company. 

What’s an LLC? 

A limited liability company (LLC) combines the liability protection of a corporation with the tax benefits and flexibility of a partnership. 

The key points to know about operating as an LLC are:

  • Limited liability companies are separate legal entities from their owners (called members). This limited liability protects the members’ personal assets from the company’s debts.
  • LLCs have a flexible tax structure, with the option to pay taxes as a corporation or as a pass-through entity. 
  • There are no restrictions on the number of LLC owners. 
  • Members usually pay themselves through distributions, following the guidelines set in their operating agreement.
  • The specific requirements to form an LLC can vary depending on the state where your form your LLC.

Requirements for an LLC generally include:

  • Choosing a unique business name.
  • Naming a registered agent, who’ll accept legal documents on behalf of the LLC.
  • Filing articles of organization with information such as the LLC’s name, purpose, address, duration, management structure, and members. 
  • Paying taxes and fees based on the state requirements.
Advantages of LLCs Disadvantages of LLCs
Protects the owner’s personal assets Subject to self-employment tax, meaning a possible higher tax bill
It’s a pass-through entity, so you include business income on your personal tax return. This way you avoid double taxation (where the corporation and shareholders pay tax on the same income). Fewer options for raising capital compared to corporations
Offer greater flexibility in management and ownership structure The multi-member structure can become complex

How LLC taxes work

LLCs don’t pay corporate income tax. Instead, they pass through their tax liability to the business owners. In an LLC with multiple owners, each owner includes their share of the company profits and losses on their personal income tax returns.

However, LLCs have the option to choose a corporate taxation structure with the IRS. Choosing a corporate tax structure can be an advantage for high-income-earning LLC members. 

In an LLC with a corporate tax structure, the LLC would file a corporate income tax return and pay the corporate tax rate instead of passing the liability on to the members. 

LLC ownership

LLCs have a very flexible ownership structure, with the only requirement being that members need to be at least 18 years old.

An LLC can have one or multiple members, with no maximum number of members. Also, owners can be individuals, corporations, other LLCs, or foreign entities.

LLC management structure

An LLC provides its members with more flexibility than an S corp. There are two types of LLC management structures: member-managed and manager-managed. 

In a member-managed LLC:

  • Each member has the authority to make decisions on behalf of the LLC.
  • Each member has the responsibility to play an active role in the management and operation of the business.

In a manager-managed LLC:

  • One or more individuals act as the LLC manager. 
  • Only the manager has the authority to manage the company.
  • The manager can be a member or a non-member. 

Unlike in a member-managed LLC, members of a manager-managed LLC can’t make decisions on behalf of the company. Members also can’t interfere with the LLC manager’s operational decisions.

Most LLCs include their management structure with their articles of organization.

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What’s an S corp? 

An S corporation is a corporation that chooses to pass its tax liabilities and tax credits to its shareholders for federal tax purposes. 

An S corp is a tax classification. It offers the same personal liability protection as a traditional corporation without a corporate income tax.

Most S corps start as traditional corporations (called C corps). To avoid double taxation, or for other reasons, corporations can file an S corporation election with the IRS. However, not all corporations meet the requirements for an S corp status.

Advantages of S corps Disadvantages of S corps
Provides limited liability protection for shareholders Ownership restrictions, such as 100 members max and only one class of stock
As a pass-through entity, it’s not subject to corporate income tax Must pay a salary to shareholders
Can save on employment taxes by paying shareholders both a salary and dividends Complex tax filing requirements

How S corp taxes work

S corps pay taxes as pass-through entities. Instead of paying the corporate tax rate, shareholders report their share of income and losses on their personal income tax returns.

S corps need to pay their shareholders a reasonable salary and withhold employment taxes like Social Security and Medicare (roughly 35% to 40% of the shareholder’s total take). They can also pay out dividends to shareholders from the company’s remaining profits.

This distribution would not be subject to employment taxes which would equate to a 15.3% tax savings. It can help companies save money on income taxes in the long run while avoiding double taxation.

S corp ownership

To qualify for S corp status, the corporation must meet the following requirements: 

  • Be a domestic corporation
  • Have only allowable shareholders (individuals, certain trusts, and estates)
  • No more than 100 shareholders
  • Only one class of stock
  • Not be an ineligible corporation (certain financial institutions, insurance companies, and domestic international sales corporations)

S corp management structure

S corps have specific requirements regarding their management structure. An S corp must have shareholders and officers.

  • Shareholders: Owners of the company 
  • Officers: Manage the day-to-day operations of the company

Shareholders can play a dual role by choosing a shareholder-officer position, instead of hiring officers.

Some companies also have a board of directors, but it’s not mandatory. If the company has a board of directors, the shareholders typically elect them. 

S corps must also follow certain corporate formalities, including holding annual meetings and maintaining proper records of company activities. Regulations vary by state, but they usually include recording meeting minutes. 

How to choose between an LLC or S corp 

Choosing between an LLC and an S corp depends on various factors, including your business goals, structure, and tax considerations. Below are some guidelines to help determine the right one for you.

When to choose an LLC

Choose an LLC when you want:

  • A more flexible and less formal business structure
  • Fewer administrative requirements
  • Greater flexibility in management, ownership, and profit distribution
  • Flexible payroll requirements

Small businesses and startups that need operational flexibility would operate best as an LLC.

When to choose an S corp

Choose an S corp when you want:

  • A corporate legal business structure without being subject to double taxation
  • Potential tax advantages, particularly if you’re a business with substantial profits
  • Consistent income and benefits for owners while enjoying the tax advantages of pass-through taxation
  • To attract outside investors for rapid growth

Growing, high-income earning companies can see potential tax advantages from choosing an S corp status.

Choose the best entity type for your business

If you’re unsure which entity type to choose, you can use a tax service like Xendoo.

Our in-house CPAs can help save money on taxes, outsource your bookkeeping, or get personalized advice like choosing between LLC vs. S corp.

FAQs

Which is better for taxes: LLC or S corp? 

The answer depends on your specific circumstances. However, an S corp can provide potential tax savings for businesses with higher profits because they allow for structured tax planning and savings.

LLCs may be more advantageous for businesses with lower profits or companies that need flexible operational and payroll requirements.

Why choose an S corp over an LLC?

An S corp can offer tax savings by potentially reducing self-employment taxes. It can also be a more appealing structure for businesses with plans for significant growth or attracting outside investors.

Do S corps pay self-employment tax?

No, an S-corp does not pay self-employment taxes. Instead, owners receive a reasonable salary and have payroll taxes withheld from their paychecks.

They also receive distributions from the company’s profits, but they aren’t subject to tax.

Can you switch from an LLC to an S corp?

Yes, it’s possible to switch from an LLC to an S corporation by filing the required forms with the IRS. You also need to qualify as an eligible entity for S corporation status and follow the specific steps the IRS outlines.

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

How far back can the IRS audit?

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Generally, the chances of the Internal Revenue Service (IRS) auditing you are low. For most taxpayers, the audit rate is less than 1% to 2%. However, businesses tend to have more complex tax returns, so auditing is a concern. How far back can the IRS audit you?

Typically, the IRS only goes back to audit tax returns that you’ve filed within the last three years. However, there are exceptions—like underreporting or foreign income mistakes—where the IRS may audit your returns from the past six years or anytime (if the IRS suspects fraud). 

Businesses can take steps to avoid triggering an audit. For example, online bookkeeping and business tax services can file accurate returns, on-time for you so you avoid common audit triggers.

If you’re curious about your business taxes and chances of an audit, learn everything from how far back can the IRS audit to what red flags trigger audits.

How far back can the IRS audit tax returns?

The IRS won’t audit most taxpayers. When it does, it normally happens within one to three years after you’ve filed tax returns. The general statute of limitations is three years. 

It begins from the time your taxes are due or when you file your tax returns, whichever is later. So, if you filed tax returns late, then they’ll have three years from the date you filed. 

That said, there isn’t a time limit on when the IRS can audit past returns if: 

  • You haven’t filed tax returns 
  • It suspects fraud

What triggers an audit?

An IRS audit doesn’t necessarily mean something is wrong with your tax return. In most cases, audits are due to random selection by computer screenings or minor math errors.

However, there are certain “red flags” that increase the likelihood of an audit. For example, you might trigger an IRS audit if:

  • You have large changes in income or deductions from year to year.
  • The deduction amounts you claim are all rounded numbers (end in zero) or are otherwise out of the ordinary.
  • You use the same bank account for both business and personal expenses.

Let’s take a closer look at other factors and how they impact your chances of being audited, including:

  • High income
  • EITC
  • Charitable donations
  • Home office deduction

1. High-income earners

It’s a bit of a misconception that the IRS audits high-income earners more often than low-income earners. The IRS has claimed that as your income grows, so do your chances of an audit. 

However, a higher income doesn’t necessarily mean the IRS is more likely to audit you. Instead, it’s more likely because those with higher incomes tend to have more complex tax returns. 

Mistakes and errors that trigger audits are more likely to happen with complex tax situations. (It’s especially the case if you try to do your taxes on your own, rather than working with a tax professional.)

Although the IRS has been trying to increase audit rates for the wealthiest, it lacks funding and staff. Low earners usually have simpler tax returns that may only include Form 1040 and no itemized deductions or credits. It’s easier for the IRS to automate those audits. 

On the other hand, complex tax returns are also harder to audit and require people to manually review them. 

2. Earned Income Tax Credit

Low-income earners (making less than $25,000 per year) that also claim the Earned Income Tax Credit (EITC) are five times more likely to be audited than everyone else. 

Again, it isn’t because of the income alone. The IRS saw a trend that many claim the EITC in error, so tax returns with it get flagged more often for audits. In addition, those audits are often automated and take fewer resources for the IRS to do. 

3. Excessive charitable deductions

The IRS sets strict rules for charitable donations, such as requiring written proof of all transactions over $250. They also set limits for the total amount you can deduct, which can’t exceed 60% of your adjusted gross income (AGI).

The IRS may take a closer look if you claim an excessive amount of charitable deductions on your tax return.

4. Home office deduction

The IRS also monitors claims for the home office deduction, because many taxpayers get confused about which expenses qualify. 

The general rules to claim home office expenses are:

  • You must be an independent contractor or self-employed
  • Your home office must be your primary place of business
  • You regularly use a separate structure or part of your home for business

To qualify, you need to document your expenses and make it clear how often you’re using your home for business purposes. For example, if you store products or run a daycare from your home, it’s a qualified home office expense. However, you need to track the hours you use it and factor that into home office expenses like mortgage interest and real estate taxes.

If you claim home expenses that aren’t exclusively for business use, the IRS may remove the credit and assess additional tax owed.

5. Meal, travel, and entertainment expenses

The IRS pays close attention to claims for large meal and entertainment deductions. Similar to home office deductions, taxpayers mistake what they can claim as a meal, travel, or entertainment expense.

For instance, certain meal expenses are fully deductible, while others are only 50% deductible. Entertainment expenses are no longer deductible unless they’re specifically for company-wide events.

Many of these common triggers for an audit can be mitigated by using an expert like Xendoo who can advise on the proper procedures for more complex tax situations.

What documents will you need during an audit?

The tax law requires you to keep documents for at least three years from the filing date. 

If you’re selected for an audit, the IRS will send you a written request with the specific documents they want from you.

Some common documents they might ask for include:

  • Receipts and bills containing dates and specific transaction details
  • Legal documents and loan agreements
  • Income tax forms such as W2s and 1099s
  • Banking records

The IRS may also request other records, such as mileage trackers and medical records, depending on the reason for the audit.

How long does it take for the IRS to audit businesses?

The duration of an IRS audit depends on the type of audit and the complexity of the issues under review. Typically, audits take less than two years to complete.

However, if you take more time to gather audit documents or dispute findings, it can take longer.

In some cases, the IRS may request to extend the statute of limitations for assessment. You can approve or deny the request. If you approve it, the IRS has additional time to review your tax records and documentation. If you deny it, the IRS will make a decision based on the documents it has on hand.

How many times can the IRS audit your business?

There isn’t a limit on the number of times the IRS can audit you. However, they can only audit each tax year once, unless you or the IRS request a new audit in writing.

For many businesses, hiring a professional tax service is the best choice for keeping organized records and filing accurate tax returns. Services like Xendoo help businesses avoid audits and keep business finances on track with catch-up bookkeeping and business tax preparation.

To learn more about how Xendoo can help you manage your business accounting and finances, chat with one of our experts. We’ll get to know your business better and identify the best services for you.

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

What happens if you miss the tax deadline?

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There’s a lot to keep track of when you run a business. Many business owners look at their calendars halfway through April and realize that they missed their tax deadline. If this happened to you, it’s not too late to take action. You might be wondering: What happens if you miss the tax deadline?

In this article, we’ll go over everything you need to know about late tax filings and payments and provide an action plan to get you back on track.

Table of contents 

Tax filing deadlines

Before diving into what happens if you miss a tax deadline, let’s cover the most important tax filing deadlines for businesses. If you’ve applied for a tax filing extension before your deadline, then refer to the extension deadline section in the table below. 

Deadline  What’s due Business entity it applies to
March 15, 2023 Tax returns (Form 1065, Schedule K-1, or 1120S) Partnerships, multi-member LLCs, and S-Corps
April 18, 2023 Tax returns (Form 1040, Schedule C, or 1120) Sole proprietorships, single-member LLCs, and C-Corps
September 15, 2023 Business tax return extensions Partnerships, multi-member LLCs, and S-Corps
October 15, 2023 Tax return extensions for individuals and C-Corps Sole proprietorships, single-member LLCs, and C-Corps

The tax day for 2023 tax returns will fall on March 15, 2024, for partnerships and S-Corps and April 15, 2024, for other businesses. 

Difference between filing and paying taxes

There is a difference between filing and paying your taxes. “Filing” refers to submitting the required paperwork, whereas “paying” means sending the money you owe to the IRS.

While you file tax returns once a year, businesses must also pay estimated taxes quarterly. The deadline for both is the same in Q1 of 2023, but quarterly taxes have different due dates throughout the year. 

Also, the penalties for filing and paying late taxes differ. In fact, the penalty for filing late is more severe than the penalty for paying late. This means that even if you can’t pay your taxes on time, you should file or extend before the due date.

What happens if you’re getting a refund (you don’t owe taxes)

If you missed the tax filing deadline but are due a refund, you’re in luck—there is no penalty. The government is happy to hold on to your money, interest-free, for a bit longer. 

However, you have up to three years from the filing deadline to complete a return and claim that refund. Don’t delay too long, especially if you receive a Premium Tax Credit for insurance. Failure to file a tax return could jeopardize business tax credits, so it’s better to act soon.

What happens if you miss the tax deadline and owe taxes

If you owe taxes and missed the filing deadline, there’s a mix of good and bad news. The bad news is that you can’t file an extension at this point, and the IRS may charge a failure-to-file or failure-to-pay penalty for missing the deadline. 

The good news is that you can still file your tax return—the faster you file, the more you can avoid extra costs. What happens if you don’t file taxes also depends on how long it’s been since you last filed. 

Penalties and interest

Penalties and interest vary based on your situation and how late you are in filing and paying taxes. The penalty for late filing is ten times larger than the penalty for late payments. 

  • Late payment penalty: 0.5% per month of the unpaid tax, up to a maximum of 25% of the amount due.
  • Filing late penalty (if no extension): 5% of the unpaid tax per month, up to a maximum of 25% of the amount due.

What if you can’t pay your taxes?

If you’re unable to pay your taxes in full, there are several courses of action you can take. Most importantly, be proactive and communicate with the IRS. The options below will help you minimize the financial impact of late tax payments.

Pay with a credit card

If you’re unable to pay your taxes, you could explore borrowing options. For example, you could use a credit card to pay your taxes. This can cover your tax liability in full and avoid more penalties and interest. 

However, carefully consider the interest rates and repayment terms for any loan or credit card before proceeding.

Request a payment installment plan

You may qualify for a payment installment plan with the IRS if you can’t pay in full. With an installment plan, you’ll pay your tax liability over a period of time through monthly payments. To apply for an installment agreement, submit Form 9465 with your tax return or online through the IRS website.

Apply for an offer in compromise

An offer in compromise (OIC) is a program that allows you to settle your tax debt for less than the full amount you owe. It’s typically available to taxpayers who demonstrate that paying their full tax liability would cause financial hardship. To apply for an OIC, submit Form 656 and a $205 non-refundable application fee.

Request a temporary delay

You can request that the IRS temporarily delay collection until your financial situation improves. To do this, you’ll provide the IRS with information about your income, expenses, and assets. If the IRS determines that you can’t pay, they may grant a temporary delay.

How to file for a tax extension

To file for a tax extension as a business, you can file Form 7004 online to the IRS. If tax returns were due on April 15, you’ll need to file your extension before then too. 

form 7004

An extension only grants you more time to file your tax return, not to pay any taxes due. You must still pay your estimated tax liability by the original tax deadline.

How to file taxes after you’ve missed the deadline

When you’ve missed the tax deadline, these steps will help you get caught up, file your taxes, and avoid extra costs.

1. Collect all your documents as soon as possible

The first step is to gather the documents you need to file your business taxes. 

To file taxes for your business, you’ll need:  

  • Income statements and any other documents that report your earnings for the tax year.
  • Expense records – receipts, invoices, and other documentation for deductible expenses, such as business expenses, or charitable donations.
  • Bank and credit card statements to make sure you haven’t missed any income or deductible expenses
  • Accounting software, tax forms, schedules, and instructions to help you file.

2. Get help from catch up bookkeeping and tax experts

If you’re behind on your books, you may struggle to collect all the financial documents you need. Luckily, there are catch up bookkeeping services that can help you get organized (and avoid falling behind again).

Look for catch up bookkeeping services with bookkeepers and certified public accountants (CPAs). Both can help you navigate the complexities of late tax filing. 

Catch up bookkeeping experts and tax CPAs can:

  1. Organize your financial records: Get your financial records in order, so you get caught up on late and back taxes.
  2. Develop a plan: Address any penalties and interest for late tax filing or payments.
  3. Establish a system for the future: With bookkeeping year-round, you’ll have all the documents you need for taxes. 
  4. Remind and prepare you for tax deadlines: They’ll handle current and future tax filings, so it’s always on time and accurate.

Your business may also pay less in taxes with a CPA, who identifies all your eligible tax credits and deductions. 

3. File a past-due return

The process to file a past-due tax return is similar to how you’d file normally. Some tips that can make filing a little easier include: 

  1. Use tax software: Many tax software programs include features that help you manage your books and tax documents.
  2. Review your return for accuracy: Double-checking your return can help you avoid more hold-ups from inaccuracies or mistakes.  
  3. File electronically: Filing your tax return electronically can speed up the process.  

Missing the tax deadline can be stressful, but it’s not the end of the world. By understanding the consequences and taking appropriate action, you can minimize the impact of late tax filing on your finances. 

Xendoo’s bookkeepers, accountants, and CPAs are experts at small business tax preparation. We can help you can regain control and stay on track for future tax seasons. If you’re behind on your books or taxes, schedule a chat and learn how Xendoo can help.

FAQs

Can you file taxes after the deadline?

Yes, you can file taxes after the deadline. If you missed the tax deadline and didn’t request an extension, file as soon as possible to minimize penalties and interest. 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

What happens if you get audited and don’t have receipts?

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what happens if you get audited and don't have receipts

Most small businesses are unlikely to go through an IRS audit, but it’s possible. 

What happens if you get audited and don’t have receipts to back your expenses? It’s a common question and concern for many business owners. 

The best way to avoid headaches during an IRS audit is to keep accurate business records and bookkeeping year-round, including tracking receipts. 

Receipts are a paper trail for your business transactions and taxes. Without them, it’s harder to prove your tax deductions and other records are accurate. However, forgetting or misplacing receipts happens, especially when you’re busy running a business.

The IRS regularly deals with missing receipts, so there are guidelines for what businesses can do if they don’t have receipts. 

Xendoo’s bookkeepers and CPAs have years of experience managing business records. Below, learn everything you need to know about IRS audits and receipts. 

Table of contents

Why do businesses need receipts?

Receipts are records and proof of payment for the income and expenses your small business claims on tax returns. Without receipts, you may not be able to prove that a business transaction took place.

Businesses should keep receipts for record-keeping, but also to claim tax deductions and credits. 

For example, if you’re traveling away from home for a business trip, you could deduct travel expenses, which would save you money on taxes.

However, you’ll need to prove that the travel was for business purposes and keep receipts for items like: 

  • Airfare
  • Hotels
  • Parking fees
  • Car rental or ride-share
  • Other travel expenses 

Receipts businesses should keep

Receipts aren’t the only records businesses should keep; they help you track your income and expenses. 

Companies track a lot of receipts. Some examples of costs that you’ll need receipts for include: 

  • Office supplies and equipment 
  • Inventory purchases
  • Advertising and professional services
  • Company training and employee education
  • Travel expenses

Since this isn’t an exhaustive list, it’s best to track all your business receipts and update your records regularly. To make the process simpler, many small business owners use business expense tracking and receipt apps. 

A bookkeeping service can also advise you on which records and receipts to track (and in some cases, do it for you). 

What happens if you get audited and don’t have receipts

You have several options if you’re audited and don’t have receipts. Because the IRS regularly deals with missing receipts, there are standard steps businesses can follow.

In most cases, you can track down receipts or provide other documents, which we’ll outline later, to prove an expense. The worst-case scenario is that the IRS may remove some business tax credits and deductions you claim. 

Audits aren’t as big a deal as movies and the media make them out to be, especially if you keep organized business records. There are many reasons the IRS might audit a business, but most happen due to random selection or tax errors.

If the IRS audits you, you’ll receive a notification letter. From there, you’ll communicate with your auditor and provide the documents they ask for.

The IRS doesn’t always share what triggered an audit, but these are some red flags: 

  • Over or under-reported income 
  • Suspiciously high tax credit and deduction claims
  • Rounded numbers ($2,000) for expenses instead of exact amounts ($1,930) 
  • Other mistakes or inaccurate data

Although tax professionals and CPAs are familiar with tax laws and can help you navigate an audit, they focus on avoiding audits first. Business tax services prepare and file taxes for you, so they’ll catch inaccuracies and mistakes before you send tax returns to the IRS.

What to do when you don’t have receipts

If you don’t have receipts and you’re worried about an IRS audit, you have two options.

  1. Hire a catch up bookkeeping service that also has tax CPAs. They’ll get your records caught up, file your taxes accurately, and help you avoid an audit in the future. 
  2. Gather all the receipts and tax documents yourself. You’ll need the time to dig through and organize your business records.

If you don’t do either of the above options, you’ll likely take the loss of deductions or credits. Depending on your situation, you may need to pay IRS fees.

Let’s look at the steps you can take when you don’t have receipts. 

1. The Cohan rule

Missing receipts are so common that since the 1930s, a legal rule has outlined options for taxpayers who don’t have them. It’s called the Cohan rule, and in some cases, you can use it to claim deductions if you’re missing receipts. 

In a nutshell, the Cohan rule says that:

  • You can claim business expenses without receipts if they’re reasonable and credible.
  • The IRS may not allow you to claim the full amount. Instead, they’ll calculate the minimum standard amount for expenses.

The Cohan rule has helped many small business owners prove their expenses when missing receipts. However, the IRS can reject your deductions even if you follow the Cohan rule. 

For example, you can’t claim the Cohan rule if your deductions include certain expenses like entertainment. You’ll also need to explain and document the:

  • Exact purchase amount for products or services
  • Reason for the purchase
  • Dates and locations when you purchased it
  • Other relevant transaction details

2. See if vendors will provide invoices and receipts

To provide the IRS with documentation, you can reach out to vendors to request duplicate receipts.

Since most vendors use online invoicing and billing systems, they’ll have copies of your records.

Keep in mind that some vendors might charge a fee for their time to retrieve past invoices, receipts, and other statements.

3. Find checks, credit card, or bank account statements

If you’re unsure where you made a purchase or can’t contact them to provide copies, search through old checks and bank and credit card statements.

Going through these documents can tell you:

  • How much you spent
  • When you made a purchase
  • What company is the transaction from

You can use this information to reach out to vendors and ask them for receipts or use it to prove your expense is legitimate. Getting copies of the receipts is ideal though, since it will show exactly what you spent money on to count as a tax-deductible expense. 

4. Review your calendar and emails

Reviewing your calendar and email will help you narrow your search for receipts.

When you make a purchase, companies often send payment confirmation and a copy of your receipt to your email. If you know the company’s name, purchase date, or other details, you may find it by quickly searching your inbox. 

If you don’t, looking through your calendar could reveal where you were on certain days. It’s especially helpful to find when you travel for business so you can claim those travel expenses. 

Although this method helps you find transaction details, the IRS doesn’t accept calendars or emails as proof of business expenses.

5. Look at location data and maps on your phone

A similar method for searching for transaction details is to use location data on your phone. Your phone stores a lot of information about your activities throughout the day. 

You can search through your Google search or social media history to find the names of vendors and locations you visited. 

Again, it will help you find where you purchased so you can track down receipts. However, the IRS doesn’t accept location data as proof of your deduction eligibility.

How far back can the IRS go to audit previous tax returns?

During audits, the IRS generally reviews income tax returns for up to three years. However, in certain cases, the IRS may extend this period to six years if they deem it necessary to investigate any issues in your past tax returns. It is crucial to note that such a six-year audit extension is uncommon and is typically reserved for more serious or complex situations.

How bookkeeping and tax services help

Although keeping records and receipts is best, you can claim reasonable business expenses without receipts. If you don’t have receipts, you may not be able to claim the full amount of deductions unless you can prove your claims are legitimate. Missing receipts could mean you have inaccurate records and tax returns, which could trigger an audit. 

Businesses can avoid audits with accurate and organized bookkeeping year-round. However, there are many records that businesses need to keep, including receipts, financial statements, payroll, and much more. It’s understandable if you lose a few receipts or fall behind—many businesses do. 

Professional tax services like Xendoo make bookkeeping easy for businesses. If your business needs catch-up bookkeeping, accounting, tax services, or a combination, chat with a Xendoo accountant. We’ll get to know your business and its bookkeeping and accounting needs during the chat. If you aren’t sure which services you need yet, we’ll help you figure that out.  

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

How To Fill Out Form 1065

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Form 1065 is the end-of-year tax form for small businesses that operate as partnerships. So if you registered your business entity as a partnership, you must file the form at the end of your company’s tax year. 

With all the responsibilities that come with running a business, it can be difficult to stay on top of the latest tax requirements, regulations, and deadlines. Form 1065 is a complex tax form with many requirements.  

While you may pass off your tax return filing to a professional, it’s helpful to understand what’s going on with your business taxes. If you’re a small business owner trying to understand Form 1065 and its requirements, this guide will clear things up for you.

What is Form 1065: U.S. Return of Partnership Income?

Form 1065 is an informational form for partnerships to declare their profits, losses, deductions, and business tax credits for the year. To the IRS, an informational form is one that does not calculate any tax due. 

There is no tax due with this form because partnerships are taxed as pass-through entities in the U.S. This means that the company itself doesn’t pay taxes on the profits it makes. Instead, the tax liability is passed on to the owner or owners of the business. 

Although there is no tax due on Form 1065, you still need to fill it out accurately to reflect your company’s business activity for the year.

partnership form 1065 example

Who must file Form 1065?

If your business fits any of the following, you’ll need to file a yearly Form 1065.

  • All partnerships with business activity in the US
  • LLCs (limited liability companies) that have elected a partnership tax status
  • Foreign partnerships with at least $20,000 of income coming from business activity in the U.S
  • 501 (d) nonprofit religious organizations must also show member dividends whether they’re distributed or not. 

Who doesn’t have to file Form 1065?

As with any business tax form, there are exemptions. You may not need to file it if:

  • You hold 100% ownership of a business with your spouse as your only business partner. You can choose to be treated as a Qualified Joint Venture instead and report your business activity on a joint Form 1040. This won’t reduce your tax liability, but it will give both you and your spouse credit for social security earnings.
  • Your business is a foreign partnership that earned less than $20,000 from activity in the U.S.
  • You run a partnership business with specific attributes—syndicates, joint ventures, and pools.
  • You’re part of a publicly traded partnership, and your company’s passive income does not exceed 90% of the company’s total gross income. You’ll file Form 1120 instead.
  • You are a real estate mortgage investment conduit (REMIC) operating as a partnership, you’ll file Form 1066 instead.

When to file Form 1065?

Form 1065 is due three months after the end of the tax year—on the 15th day to be exact. If your partnership follows the calendar year like most small businesses, your deadline falls on March 15th. 

If the deadline falls on a weekend or legal holiday, you’ll file the form by the next non-holiday business day. March 15th is the deadline for calendar year partnerships in 2022 and 2023.

What to do if you miss the Form 1065 deadline?

If you don’t file Form 1065 by the deadline, your company will be responsible for a $220 fee for each month you’re late. The fee amount may change from year to year. So it’s best practice to file an extension if you’re not prepared to file by the deadline.

How to file Form 1065

Most companies hire a CPA or tax professional to file their 1065 because it’s a complicated form. It’s much more likely to be accurate when filed by a small business tax preparation service, but there are a few basic steps all partnerships need to follow.

1. Gather your year-end financial statements and records

The first thing you’ll need to do is prepare accurate records for your company’s tax year. You’ll need to have clear totals of your company’s gains or losses, as well as the deductions and credits you’re eligible for. 

There are many documents that you may need to attach to your return, depending on your business. Some of these include:

  • Your company’s year-end profit and loss statement – shows all business activity for the year.
  • The year-end balance sheet – shows what your company owns and what it owes to others.
  • Schedule K-1 forms for each business partner – show each partner’s share of the company’s profit, losses, and credits.
  • Schedule L – reconciles your company’s balance sheet with its tax return.
  • Schedule M-1 – reconciles your company’s profit and loss statement with your year-end tax return.

You might need to attach a few other schedules, depending on your partnership’s operations and activity. It’s best to consult with a tax professional before you file Form 1065.

2. Provide company information

Next, you’ll need to fill out the required information on the form, such as your:

  • Employer identification number (EIN), which is assigned by the IRS to identify your company’s tax account
  • Business code number, which classifies your company based on the type of service or product you provide
  • Accounting method (cash or accrual) 
  • Cost of goods sold if you sell physical products (in which case you’ll also need to attach Form 1125-A) 
  • Income totals for the tax year
  • Deductions your company is eligible for, which will reduce your tax liability

3. Consult an online business tax service with CPAs

To make sure you’re filing an accurate Form 1065, have a tax professional take care of it for you. If you work with a business tax service that also does year-round bookkeeping, they’ll already have your information to file for you. It makes the process simpler and faster for you, but verify that they have in-house CPAs to file taxes. Some online bookkeeping, accounting, and tax services don’t have CPAs and outsource tax returns.

To recap, all U.S. and foreign partnerships need to file Form 1065. For most partnerships, this falls on March 15th. 

Small business tax services like Xendoo come with a year-end package to make the process easier and stress-free for small business owners. We also have in-house bookkeepers and CPAs to file your taxes. 

FAQs

Is Form 1065 for an LLC?

LLCs need to file Form 1065 only if they have elected to be taxed as partnerships. LLCs that choose C corporation for their tax filing status need to file Form 1120 instead.

Is Form 1065 the same as a Schedule K-1?

Your tax professional will reconcile Form 1065 and Schedule K-1 against each other, but they are not the same. You’ll only file one Form 1065 per partnership, but you’ll need to file a Schedule K-1 for each partner.

A Schedule K-1 will show one partner’s share of the company’s gains and losses. Form 1065 will show the amount of all partners combined.

Example: A two-person partnership’s year-end profit equals $100,000. In this case, each partner should receive a Schedule K-1 showing a $50,000 year-end profit. Form 1065 should show a total of $100,000.

Do you need to file Form 1065 if you didn’t have partnership income?

No, you don’t need to file Form 1065 if your partnership has zero income and expenses to report. However, if you have zero income but some expenses to report, you’ll need to file it.

 

General Business Credit (Form 3800): How To Fill it Out and Get Tax Credits

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general business credit

As a business owner, you can pay less in taxes by taking advantage of credits or deductions. Tax credits lower the amount you owe. For example, if your tax bill is $15,000 but you have $5,000 in tax credits, you’ll only owe $10,000. But, there are over 30 business tax credits. Which should you claim to get the most tax savings? What forms do you need to file? 

If you’re claiming more than one business tax credit, you’ll need to fill out Form 3800, also called the General Business Credit form. In this guide, we’ll show how to file Form 3800, maximize your tax savings, and find out if any of the recent tax changes apply to you.

What is Form 3800? (General Business Credit)

The government uses tax credits to incentivize certain behaviors such as using electric vehicles or retaining employees. You might be unaware that you qualify for multiple credits that will lower your total tax burden significantly.

Form 3800 consolidates all of your business tax credits, so you tally up the total value of credits for the year. As you can see, the IRS form has a lot of information on it. 

form 3800

Who must file Form 3800?

Businesses and corporations must file IRS Form 3800 to claim multiple business tax credits during the current tax year. In some cases, you can also use the form to carry forward tax credits to a future year or carry them back to a previous year. 

In simple terms, if you exceed the IRS limit on tax credits this year, you could carry forward or apply it a future year, depending on the credit. 

Which tax credits are on the General Business Credit form?

Form 3800 collects all of your tax credits in one place, so you can calculate the total value. In addition to Form 3800, you’ll need to submit individual forms for each tax credit you claim. Here are some of the tax credits that business owners claim on Form 3800: 

One of the biggest challenges business owners have is figuring out which credits and deductions they can use. You can always use a business tax service like Xendoo and a tax CPA can do it for you. But, we’ve also included guidance below to help with filling out Form 3800. 

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How to fill out the General Business Credit (Form 3800)

Here’s a simple step-by-step guide on how to file Form 3800 properly.

1. Determine your tax liability

The first step is to determine your total tax liability. You calculate this by taking your taxable income and subtracting tax deductions. An easier way to determine tax liability is to check one of the following forms, depending on your business:

  • Form 1065 – Partnership or limited liability company
  • Form 1120 – C corporation 
  • Form 1120S – S corporation

2. Calculate your alternative minimum tax

If your income is higher than a certain level, the IRS applies alternative minimum tax (AMT) rates. The rate is 26% or 28%, depending on your income. The idea behind AMT is that everyone pays their fair share of taxes regardless of deductions. Mostly, it applies to high earners. 

To calculate your alternative minimum tax, first, take your total tax liability and add back the deductions you subtracted. Then, if your income is below $539,900 in the tax year 2022, you subtract an income exemption of $75,900. Multiply the result by 28% or 26% depending on your income level. The result is called the tentative minimum tax. 

Individuals that have alternative minimum tax will use IRS Form 6251. Still, calculating AMT is confusing, but an experienced tax professional can do it for you.

alternative minimum tax

3. Find your general business credit limit

Your general business credit limit is the maximum amount of tax credits you can use to lower your taxes. Finding your general business credit limit involves a bit of math, but here are the basic steps: 

  1. Calculate 25% of the portion of your net regular tax liability that exceeds $25,000. 
  2. Compare your tentative minimum tax and the 25% of the net regular tax liability calculated in the first step. Identify the greater value.
  3. Subtract the greater value from step two from your net income tax to find your general business credit limit.

4. Understand carryback and carryforwards

If you’ve reached your general business credit limit, you can still claim the tax credits you have left by carrying them back or forward. 

The IRS permits this to avoid penalizing small businesses that do the actions they are trying to incentivize. If this program were not in place, businesses would only be incentivized to claim credits until they reached their general credit limit, which would be counterintuitive.

You’re allowed to carry back most credits for one year. This means that if you did not reach your general business credit limit last year, you can amend the previous year’s return.

You are also allowed to carry forward tax credits. If you haven’t reached your general business credit limit this year, you can apply the unused credits from past years on this year’s return.

5. File Form 3800 with your tax return

The following businesses are usually pass-through entities, meaning you’ll file and pay personal and business taxes in one return. When you file taxes, you’ll also submit Form 3800 and other individual tax credit forms. 

  • S Corporation
  • Sole proprietors
  • LLC members
  • Partnerships

Changes to know for the 2022 tax year

The U.S. tax code changes frequently. A tax credit that you received last year might not be available this year. There may also be new credits and amounts that save you more money. Here are a few of the credit changes for the 2022 tax year:

Child tax credit

In 2021, the child tax credit amount temporarily increased to $3,600 for each child under six and $3,000 for children between six and 17. Now, it is a flat $2,000 for each child under 17 years.

Electric vehicle credit

The Inflation Reduction Act of 2022 made changes to electric vehicle credits for tax years 2022 and 2023. This year, the credit ranges from $2,500 to $7,500 depending on your EV’s battery capacity. However, if the manufacturer has already sold 200,000 units of the vehicle in question you won’t be eligible. The 200,000-unit limit will phase out in 2023. You’ll also be able to get a credit of up to $4,000 for used EVs less than $25,000.

Business taxes can be complicated, and there are many tax credits and deductions that business owners miss out on every year. 

If you want to avoid the headache of filing Form 3800 and the rest of your taxes on your own, consider a business tax service that has CPAs. Putting your business tax preparation in the hands of experienced tax professionals can save you stress, and help you save as much money as possible on your taxes. See how Xendoo’s business tax preparation can help you today.