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20 Small Business Tax Deductions You Need to Know

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Many small business owners miss out on tax savings simply because they aren’t aware of what tax deductions are available. As professional accountants, we know all the small business tax deductions that can save you money, and we’re sharing them in this tax deductions checklist. 

Before we get into the nitty-gritty of what you can count as a tax deduction, let’s define what a tax deduction is and isn’t.

What is a tax deduction?

You may also hear people refer to tax deductions as tax write-offs. Put simply, it’s an expense that you can deduct or subtract from your total taxable income. 

The benefit of tax deductions is that as you lower your total taxable income, you could lower the percent you pay. There are different tax deductions for small businesses and individuals. For this, we are focused on small business tax deductions. 

The actual amount that you’ll pay in taxes depends on many factors like your tax bracket (how much taxable income you have), where you operate your business, and what type of business you have (C-corp, sole proprietorship, LLC, partnership, or S-corp). The IRS Publication 535 has about 60 pages of details related to business expenses, tax deductions, tax credits, and more, so it can be confusing for new companies.

Tax Deduction vs Tax Credit

A tax deduction and tax credit can both save you money on taxes, but they are different terms. 

Tax deductions can lower the amount of taxable income. For example, tax brackets–a range of annual income–are used for income tax. If your income falls within a lower range, the percent of income taxed may be lower. 

Tax credits are set amounts that are subtracted from your total taxes owed. If you qualify for a business tax credit, the amount of that credit is subtracted directly from the amount of taxes you pay. 

  • Tax credit – If your business owes $40,000 in taxes and you qualify for a $10,000 tax credit, you’d owe $30,000. 

Now that we have a clear understanding of what counts as a tax deduction vs tax credit, let’s dive into the specifics, so you can start saving some money on taxes.

Top Small Business Tax Deductions Checklist

To figure out if you qualify for a small business tax deduction, first identify what business expenses you have. Most business expenses are tax-deductible, but it can be tricky to track and separate them from personal expenses. 

This small business tax deductions checklist will help you do just that. You can click on each section below to go directly to that tax deduction. Some of the common small business tax deductions are: 

  1. Home office 
  2. Office supplies 
  3. Rent expenses
  4. Business insurance 
  5. Bank fees 
  6. Interest
  7. Car expenses
  8. Travel expenses
  9. Phone expenses
  10. Employee wages
  11. Employee benefits
  12. Education and training
  13. Business meal expenses
  14. Advertising and marketing
  15. Legal, accounting, and professional fees
  16. Conventions and trade shows
  17. Gifts
  18. Charitable deductions
  19. Equipment and depreciation
  20. Repair and maintenance

Let’s take a look at each of these small business tax deductions in-depth.

Home office 

Many people have questions regarding a home office deduction. So many people have been working from home since the Covid-19 pandemic, but only those who meet the home office guidelines can include this expense in their small business tax deductions.

If you use part of your home as an office and you run a self-employed, partnership, or other business, you may qualify. However, your home office needs to meet certain criteria. If it fits any of these descriptions, you likely qualify for a home office deduction.

  • Your home office is your primary place of business. If you designate a physical store or other location as your office, then you wouldn’t qualify. 
  • It is where you conduct business, meet regularly with clients, and complete orders. 
  • It is a separate structure (like a guest house or studio) that is not connected to your place of residence. 

If you do qualify, you can deduct office expenses like utilities, mortgage payments, and even repairs. You can do this by using one of two methods–simplified or regular deductions.

Simplified Deductions

If you use the simplified option for claiming tax deductions, the IRS permits you to deduct $5 per square foot of office space. However, you’ll be capped at a maximum of 300 square feet, which often prevents you from claiming garage space as a work area.

Regular Deductions

Using the regular method, you’ll need to determine the square footage of your home office and express this area as a percentage of your home’s total square footage. You can then apply this percentage to all home expenses.

For example, if your home office represents 10% of your home’s total square footage, you can deduct 10% of expenses which include: 

  • Rent or mortgage interest
  • Property taxes
  • Utilities
  • Homeowner’s insurance
  • Homeowner’s association (HOA) fees
  • Cleaning services

Can you deduct the cost of your home’s Internet? Yes. Like your other utilities, you’ll simply deduct a percentage of the cost of the Internet service for the year, including monthly fees, equipment, and installation.

Just be aware that the IRS keeps a fairly close eye on these types of deductions. It never hurts to snap a few photos to document your workspace to demonstrate it’s used for business.

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Office supplies

There are many things to buy for an office, from purchasing all new supplies to ordering more printer paper throughout the year. These are some typical tax-deductible office supplies. 

  • Paper
  • Pens, highlighters, and pencils
  • Toilet paper
  • Business cards
  • Furniture
  • Mailing supplies
  • Cleaning supplies
  • Staplers
  • Breakroom appliances
  • Drinks for employees

Mailing supplies may not fit into the office supplies category. If your small business sells homemade crafts and buys mailing envelopes to mail those crafts, that falls into a separate category for the cost of goods sold. Sending letters to customers or mailing a check to pay rent would be considered office supplies for small business tax deductions. 

Rent expenses

For many small business owners, rent is a rather large expense that can be deducted from your taxable income. However, you can only subtract business rent expenses, not personal living expenses. 

If you have a physical store or business that you pay rent for, it qualifies for a tax deduction. The exception to this is rent paid for a residential dwelling out of which you work. Even if you have a home office, you can’t deduct your home’s rental expenses from your taxes.

Business insurance

Premiums for business insurance are a sizable overhead cost, but luckily, many qualify as a tax deduction. These business insurance costs are tax-deductible: 

  • General liability insurance
  • Professional liability insurance
  • Commercial property insurance
  • Workers’ compensation insurance
  • Data breach insurance

Typically, these policy types are regarded as common and necessary for the operation of your business, so you can deduct 100% of the full amount of your monthly premiums, as well as any additional fees required for maintaining the policy.

You may have other insurance policies that are unique to your niche. If you’re unsure, it’s a good idea to contact a tax accountant to verify whether or not they count as a tax deduction.

Bank fees

Small businesses should have separate bank accounts and credit cards that are solely for company use. This keeps personal and business expenses separate.

Since you’ll be relying on a business bank account, bank fees can be counted among your business expenses, though only those that relate to normal business operations. Monthly fees, for example, can be deducted, but overdraft penalties cannot.

Many small businesses use Paypal, Square, or other services to take credit or debit card payments. These services typically charge service fees. These fees from financial institutions can also be claimed as tax deductions. 

Interest

If you have a small business loan, credit card, or investor funding, you likely pay interest on it throughout the year. Interest paid on loans and other finances are tax deductions. 

You can deduct the amount of interest paid on:

  • Business loans
  • Business credit cards
  • Mortgage loans to buy or improve your home or business property
  • Home equity loans
  • Money borrowed for investment (if the investment has more interest than income, you can carry forward the overage to next year)

Keep in mind that this doesn’t include gifts or loans that are through family members. It is hard to verify the interest paid on loans that aren’t through qualified lenders. 

Car expenses

Traveling for business is common for many company owners as they meet with clients and pick up supplies. When a personal vehicle is used for business purposes, this use can be deducted based on a standard mileage rate or actual expenses. 

  • For the 2021 tax year, the standard mileage rate deduction is .56 cents per mile. If you drove your car 100 miles strictly for business-related activities, you could deduct $56 from your taxable income. For 2022, the mileage rate is .585 cents per mile. For 100 miles, you could deduct $58.5. 

Mileage rate deductions allow business owners to track how many miles they have driven for business purposes and multiply that by the average mileage deduction rate for that year. 

An actual expense method accounts for all costs related to car expenses. It requires receipts of gas and all vehicle costs–including repairs, insurance, fuel, and registration payments–to be supplied and multiplied by the number of miles driven. To decide which method to use, choose the one that gives you the greatest deduction. Most business owners go with the standard mileage rate.

Travel expenses

Outside of vehicle expenses, there are travel-related expenses that may be tax write-offs. To qualify as a travel expense, it has to be necessary business travel, not travel for entertainment. In general, businesses are no longer able to deduct entertainment expenses for taxes. 

If you reimburse employees for travel, you can count that as a tax deduction. For the most part, travel deductions are expenses that you incur while you’re traveling away from your tax home (where you usually pay taxes). 

For instance, If you need to travel across the country to meet with suppliers, then you can deduct those expenses. 

Other travel tax deductions include: 

  • Business meals and lodging
  • Travel fares for planes, trains, buses, or other transportation
  • Dry cleaning and laundry services
  • Parking fees 
  • Cab rides

Any travel performed in the operation of your business can be deducted from your taxes. In most cases, conference tickets can also be claimed as a business expense, provided that the conference is related to your company. You can find a full list of tax-deductible travel expenses from the IRS here.

Phone expenses

If you have a cell phone devoted to your business, you can deduct the cost of your plan. This would include the monthly fee, the cost of the phone itself, and any other charges associated with setup and activation.

If you rely on your personal cell phone, you’ll have to deduct the cost of the portion of the bill devoted to business use. This can be tricky since your cell phone is likely used for more than just phone calls, but you can make a reasonable estimate by examining data usage and time spent using the phone.

Employee wages

Salaries, including commission and bonuses, are fully tax-deductible. You can subtract the full amount. 

The exception to this is if your business is a sole proprietorship, LLC, or partnership, and you do not have employees other than yourself. Because you aren’t considered an employee, you wouldn’t deduct your income as an employee wage. 

If you have family members that work in your small business, there are some additional tax considerations.

Family members who legally work for your business and are under 18, may be exempt from paying FICA, also referred to as federal payroll tax. If a family member is under 21, you may not need to pay FUTA or federal unemployment tax for them. 

Employee benefits

Although employee benefits can be costly for employers, they improve the quality of the workplace and increase staff morale. Health insurance is quite expensive for employers, but it greatly benefits employees. Under certain guidelines, it may be tax-deductible. 

Other employee benefits include paid time off, vacation time, retirement, and life insurance. 

Education and training 

Many businesses require employee training for OSHA safety, insurance license exams, and other certifications. Plus, many employees today see personal development and education budgets as a job benefit. 

Paying for employees’ training and education is not only a good incentive for workers to continue working for the business, but it also helps decrease your taxable income.

You can write off 100% of the costs associated with training that is directly related to your business knowledge and expertise. Business education tax deductions include

  • Classes, seminars, webinars, and workshops
  • Business books
  • Subscriptions to trade publications
  • Transportation expenses to and from the education venue

Business meal expenses

Wining and dining clients is a common practice. As is, showing appreciation to your employees by providing food and beverages.

You can often deduct 50% of meal costs from your business taxes, but these dining experiences must follow specific guidelines. They must be necessary and not outside of typical business arrangements. You can also deduct meals with clients, but only when they happen during business meetings. 

If you and a client decide to see a movie or sporting event, these entertainment costs will not count among your normal and necessary business expenses. Therefore, there is no deduction for them.

Here are some examples of business meal expense deductions.

  • The amount spent on food for recreational business activities like holiday gatherings or pizza parties.
  • Providing food delivery for remote employees for a virtual event. 
  • Meals that are purchased while an employee is traveling for business. 

As part of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, the IRS temporarily allowed for 100% meal-related tax deductions. This will end in 2023.

Business meal expense deductions can save you a lot of money on taxes, but it’s important to know what qualifies and what doesn’t. If you aren’t sure, a professional accountant can help you get the proper amount to write off, but you should keep track of all receipts for food expenses.

Advertising and marketing

Many business owners set aside a large budgeted amount each year for marketing expenses. Marketing and advertising are a huge part of getting the word out about your business–and they are a tax deduction. 

All expenses associated with marketing and promoting your business are tax-deductible. This includes:

  • Social media campaigns
  • Local newspaper ads
  • Radio or television spots
  • Digital marketing

There are also some less well-known marketing tax deductions to consider like: 

Design or content creation contractors

If you hire a designer or copywriter contractor–not an employee–to produce content for your business, you can deduct their wages, just as you would any other 1099 worker.

Marketing software and tools

You can also deduct marketing tools that you use to run email campaigns or manage your social media calendar. If you use subscription-based services, like Mailchimp or Hubspot, the cost of your annual subscriptions also counts toward tax deductions. 

Promotional products

T-shirts, pens, or promotional products that have your company name or logo on them are considered advertisements. These swag products are tax deductions as well as great tools for marketing.

For many business owners, these write-offs are an encouragement to invest in marketing. You’ll gain more exposure for your business while finding yourself in a more favorable position during tax season.

Many small businesses don’t realize that they can deduct costs to hire lawyers and accountants. Because legal and accounting are necessary expenses to operate a business, they count as tax write-offs.

This small business tax deduction covers any consultants you hire for running your business, including attorneys, accountants, tax preparers, and advertising agencies.

However, the tasks that these professionals conduct must be strictly for your company. Personal legal and accounting fees like estate planning are not tax-deductible. 

Conventions and trade shows

For many artists and home-based small businesses, trade shows and conventions are necessary to obtain customers and sales. These shows can get expensive when you’re paying for hotels, meals, booth fees, and other related expenses.

You can deduct these expenses from business taxes so long as they are necessary. Many of the common things businesses pay for at these shows include:

  • Registration fees
  • Supplies
  • Travel expenses
  • Hotels away from home
  • Marketing expenses

While these expenses add up, they can be substantial small business tax deductions.

Gifts

If you gift employees or customers gifts, you may be able to deduct the cost. However, compared to other expenses, it is a pretty low amount. According to the IRS guidelines, there is a limit of $25 per tax year for gifts. 

Charitable business deductions

For many businesses, charity work is a great way to give back to the community that they work hard to serve. Companies donate to charities in the form of physical goods or monetary donations. So long as these are given to qualifying charities, you can deduct these contributions. 

Keep receipts for any goods purchased for the charity as well as for cash donations. If the gift is over $250, you’ll want to get a receipt or acknowledgment from the organization.

In addition to goods, you can deduct costs associated with volunteering. According to the IRS, travel and other out-of-pocket expenses not reimbursed by the charity are eligible for a deduction. Expenses include flights, gas, hotels away from home, and meals.

Equipment and depreciation

Equipment deductions apply to any machinery, computers, or other items necessary to perform a business. These items will often depreciate with time, so you may be able to count a depreciation deduction. 

For a small business that creates custom T-shirts, equipment might include a heat press or a vinyl cutter. For a woodworking shop, equipment might consist of drills, a saw, and a nail gun. 

Equipment should not be confused with supplies, including T-shirts for the first company or nails, screws, and wood glue for the second company. 

Repair and maintenance

You will eventually need to get equipment repaired or routinely serviced. This can be a tax deduction, but it is considered separate from an equipment purchase. For instance, whenever you require something like a computer repair, this would fall under the equipment repair category.

Businesses that use large, heavy machinery that is prone to breaking down can use this deduction to deduct costs associated with repair and maintenance. Also, real estate owners may be able to deduct non-equipment repair costs for routine maintenance items like painting a building. Be careful to check before investing money into particular projects, because there are strict guidelines around what qualifies as repair or maintenance. 

Preparing taxes comes with many questions for those who don’t do it daily. It can lead to an immense amount of time browsing the IRS website to answer questions that a professional can answer in minutes. 

Tax season can be a stressful time for many businesses. There are so many deductions to consider. Preparing taxes comes with many questions for those who don’t do it daily. It can lead to an immense amount of time browsing the IRS website to answer questions that a professional can answer in minutes. 

When questions arise concerning state and federal taxes or possible deductions, it helps to have a tax prep professional ready to answer any questions. Our staff is certified by the IRS to perform tax preparation. Finding answers to questions regarding qualifications for small business tax deductions is simple.

Business owners can ask questions without paying by the hour to an individual accountant. Instead of spending hundreds of dollars for an hourly CPA, save money with Xendoo’s tax preparation service and set monthly rate.

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How Long Does It Take an Accountant to Do Taxes?

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As tax season looms, you may be wondering whether you should have an accountant prepare your taxes. In addition to considering how much an accountant costs, you’ll also want to consider how long an accountant will take to do taxes compared to trying to do it yourself.

How do you know when to bring in a tax professional? Complicated tax situations like inheritance, small business taxes, or other big life changes usually warrant bringing in a certified public accountant or CPA. 

How Much Time Does it Take an Accountant to Prepare Taxes?

The time it takes an accountant to do taxes depends on the complexity of your return and how quickly you make your tax information and necessary documents available to them. 

It is better to plan ahead before the tax filing deadline. You can ask an accountant to have a better understanding of the timeline required to complete the process. There are a few ways that you can speed up the process.

Cost and Time Considerations

A number of factors affect the time it takes to file taxes. Not all of these will be the responsibility of the tax preparer. 

First, you must make sure that you have all of the required documentation available for the tax preparer. Documentation includes any statements of income you have received from an employer or other entity, as well as any other tax forms for expenses. 

Some of the most common forms include: 

  • W-2
  • 1099-NEC
  • 1098 

The W-2 is used to report income earned from an employer, as well as the payment of any taxes. A 1099-NEC includes independent contractor earnings. The 1098 form is a statement of any mortgage interest or insurance premiums paid. 

Deductions are another consideration. If you prefer to itemize rather than take the standard deduction, you’ll need to have receipts available. 

Typical items that are itemized include:

  • Medical and dental expenses
  • Mortgage interest
  • State or local property tax

All of your receipts should be organized and provided to your tax preparer.

Tax Preparation for Small Business Owners

Business owners will have more complex taxes. Businesses are able to claim certain deductions for expenses incurred throughout the year, but they need to have appropriate evidence of these expenses. 

Gathering this documentation may take some time, especially if you haven’t kept track of your receipts during the year. Online accounting software can assist in managing small business income and expenses.

The cost of the tax preparation and filing varies. More complex returns will incur higher fees. Often you may offset the cost of these services with your tax refund if you are eligible for one.

If you choose to use a local accounting firm that specializes in tax return preparation, you will pay significantly more. However, if your tax situation is complex, it pays to engage the services of true tax professionals. 

Xendoo has a variety of plans that are priced to meet tax needs for businesses of all sizes. The accounting team will be familiar with tax law and tax code and can make sure to include all deductions available to you. Xendoo’s team can also assist you with tax planning to mitigate your tax expense in future years.

How Much Time Do You Spend Preparing Your Return?

If you have filed your own tax return in prior years, you may have spent a significant amount of time to ensure you filled it out properly. When you did, you likely had to gather all of your tax forms and expense records. Then, check that you included each applicable tax form, including form 1040

You may have struggled with situations that required more complexity, such as capital gains or business deductions. Perhaps you had significant medical expenses that required you to itemize rather than take the standard deduction. 

Whatever the reason, you likely spent significant time and effort preparing your own tax return. At the end of the process, you may not have even been entirely comfortable that your return was correct. This oversight is why it makes sense to hire someone to handle tax preparation for you.

Plus, if you have errors in your tax preparation, it can slow the process down. Tax professionals can prevent common errors so that your taxes are filed faster. 

Is It Worth Getting an Accountant to Do Your Taxes?

There are three main types of qualified tax preparers. These include enrolled agents (EAs), certified public accountants (CPAs), and tax lawyers. Other individuals may prepare taxes through retail firms, but often they will not have received education specific to tax. 

Thus, if your tax situation is complex, it makes sense to hire someone to prepare your taxes who has the education and experience that fits your particular situation.

While there is an expense associated with hiring a qualified tax preparer, doing so saves you time, energy, and potentially even money. Tax preparers are generally familiar with most of the IRS tax code and must stay up to date on any changes that are made. They will be aware of deductions that you may not know you qualify for. 

If you own a business, it is likely that you will need the services of a tax preparer. Business taxes are typically much more intricate than personal tax returns. 

They involve a number of different considerations, especially if your company has employees, equipment, or investments. Tax consulting services can assist you with ensuring your business tax return is properly completed.

Tax Accounting Software

Some people decide that engaging the services of a professional isn’t necessary, especially if they have simple returns and have some knowledge of tax. They may choose to utilize tax software to prepare their returns. 

To prepare yourself for tax time, there are a few online accounting software options that may help.

When you get a Xendoo plan, you can also sync to online accounting software and tools through our partners. These include:

  • Xero 
  • Quickbooks

Although these tools can make the tax filing process easier, there is still some heavy lifting that you need to do. Xendoo comes with accountants that can advise you when filing tax returns.

There are a number of factors that impact how long it takes to complete income taxes. To speed up the process, store all of your tax-related documents throughout the year and keep them organized.

For small business owners and more complex tax needs, using a tax preparer like Xendoo can save time and money. If your return is complicated, consider small business tax preparation services.

A tax advisor helps a business owner file taxes.

How Much Is a Tax Consultant?

A tax advisor helps a business owner file taxes.

If you own a business or earn a significant income, you may be wondering how to manage your tax situation and how much a tax consultant costs. There is a lot to consider when weighing the costs and benefits of hiring a tax consultant. You might need help mitigating tax exposure and ensuring tax planning, charitable giving, and other complex tax needs.

A tax consultant can help with any of these issues. They can also help file taxes as a business owner. How much you can expect to pay for the services of a tax consultant? Read on to find out.

How Do Tax Advisors Set Their Prices?

A tax consultant will charge a fee based on different factors. One factor is the type of forms that you need to file. The National Society of Accountants (NSA) reports that tax consultants typically charge between $176 and $457. It may cost more if you are filing more complex and specialized tax forms.

It costs $323 on average for an individual filing a tax return Form 1040 and a state return with itemized deductions. Tax filings such as business, gains and losses, and estate are more complex and have higher fees associated with them.

However, the actual costs vary based on your tax situation. Some elements that play a role in tax consulting fees include:

Location

The location of a tax consultant plays a big role in their fees. You can expect to pay higher fees for accountants based in a larger city with a high cost of living. For example, filing taxes in California will likely cost more than in other parts of the United States.

Complexity of Services 

For simplified matters, such as preparing an average tax return, fees may be fairly low. However, you can expect to pay more in more complex cases that involve significant research or time.

If your situation requires specialized knowledge about tax codes, fees are usually commensurate with qualifications.

What Does a Tax Consultant Do?

A tax consultant is trained in tax law and financial accounting. They advise clients on income tax returns during tax season and help with financial matters, including trusts and estate planning. 

They also should know recent tax law changes on both a federal and state level. 

Tax consultants offer a wide variety of services. These may include:

  • Preparing your federal form 1040 and state return
  • Navigation business tax requirements and preparation
  • Looking for available deductions to lower your tax burden
  • Helping to manage capital gains taxes
  • Sorting through tax advantages of life events

A tax consultant may work with individuals, businesses, or both. Business tax law is often far more intricate than individual tax law. Companies can benefit from the services that a tax consultant provides. They will have an in-depth knowledge of legalities surrounding the business structure of an entity and the deductions that may be available to a given company. 

Tax forms as a first-time business owner can be complex, which means that it can be helpful to have someone help you navigate through them.

Is a Tax Advisor the Same as an Accountant?

A tax advisor is not the same as an accountant. Tax advisors may specialize in tax law, wealth management, and tax mitigation strategies.

While an accountant may have some tax training, their understanding is typically more basic unless they specialize in tax accounting. An accountant’s regular duties vary based on their industry. If they work in public accounting, they may oversee or conduct an audit of a public company’s financial statements.

If they work for a company, they may record journal entries, prepare financial statements, or reconcile general ledger accounts.

What Qualifications Does a Tax Advisor Have?

At a minimum, a tax advisor has usually obtained an undergraduate degree, typically in accounting or finance. They may also have received a master’s degree in finance, accounting, or tax. Oftentimes, they will hold a Certified Public Accountant or Enrolled Agent certification.

Highly specialized tax advisors may earn a law degree in taxation. This degree can assist them with more complicated tax matters, such as international tax or corporate business planning and strategy.

Why Do I Need a Tax Advisor?

A tax advisor can be quite helpful for complex tax matters. They may also serve to advise businesses on specific tax strategies, such as identifying available deductions or setting up a business entity. 

There are a variety of different activities that a tax advisor may assist you with. Some of the more popular services include:

Minimizing Taxes in Retirement

The goal of most individuals is to retire from their careers at an age at which they are still able to enjoy their time with minimal health issues. However, retirement planning is a lot more intricate than simply depositing funds into an employer’s qualified retirement plan. 

A good tax consultant can work with you to ensure that your income is protected from significant taxation as you age. With adequate resources, you can maintain your quality of life well into your golden years.

Helping to Mitigate Business Taxes

Business and corporate taxes can be complex, especially if you are the owner of a sizable organization. Having someone by your side who understands the tax code can prevent excess taxation and protect your business assets.

A business tax consultant will also be familiar with relevant state tax laws, sales, and local taxes.

Even if your business is not complex, a tax consultant can assist you with navigating potential small business accounting tax issues. For example, a professional can help you ensure that your employees are paid in compliance with federal and state payroll tax laws. They can also assist in completing relevant tax forms for the IRS, such as your estimated taxes and yearly W-4 tax filings.

Preparing Your Personal Tax Returns

If you have a lot of investments, operate as a sole proprietor, or have complex personal tax matters, you can definitely benefit from the help of a tax consultant. 

Oftentimes, investments can result in net investment or capital gains taxes that can be arduous for someone without tax experience to deal with. Tax consultants can advise you about strategies to prevent excess taxation on these holdings.

If you operate as a sole proprietor or a freelancer, you may be unaware of tax deductions that you can use when preparing your tax returns. Engaging the services of someone who understands tax codes can help you to save money on your taxes and ensure that you remain compliant.

If you have questions on a specific situation, you are much better off in seeking the assistance of a qualified tax professional than trying to go it alone.

When Should I Get a Tax Advisor?

No one is immune to the need for tax consulting services. Anytime you have questions surrounding a tax situation, no matter how small it may be, it’s a good idea to seek the advice of a tax professional. 

At Xendoo, our tax advisors can help with a wide range of situations, including retirement planning, business entity setup, and preparing your taxes. Get in touch to learn more today.

a person filing their schedule C form

Filing Your Schedule C: A Simple Guide

A real estate records her numbers for the week on a laptop,

Are you a small business owner? If so, you may be looking for advice on filing your Schedule C. The IRS Schedule C is used by sole proprietors and single-owner LLCs to report your small business taxes and is part of your personal tax return.

We understand that business taxes can seem confusing, if not overwhelming. That’s why we’re here to help you with filing your Schedule C so you can stay in compliance and get back to business.

Is it Worth Filing a Schedule C?

As with other details surrounding your small business taxes, it’s unfortunately not a question of whether it’s “worth” filing your Schedule C. Schedule C is required for the following business types:

  • Single-owner LLC
  • Sole proprietor

The only other business type that might need Schedule C is when two married people organize a special type of partnership known as a Qualified Joint Venture. In this instance, the couple will use two Schedule C forms when filing small business taxes.

Using a Schedule C doesn’t exempt you from paying your quarterly estimated business taxes, of course. You’ll still need to make these regular estimated payments to avoid any penalties and fees when it comes time to file your return. 

Your Schedule C will help determine your actual tax debt for the year, and you can then see how it compares with your quarterly estimates.

Can I File a Schedule C By Itself?

By itself, a Schedule C will not count as an acceptable tax filing form. Instead, a Schedule C must be submitted along with your personal income taxes using Form 1040. Your Schedule C can be submitted electronically with your personal income tax or stapled to your paper form.

To understand this better, consider the way that small business taxes are typically handled. Sole proprietorships and single-owner LLCs are legally considered pass-through entities. 

This designation means that your business is not considered to be a taxable entity by itself. Instead, the profits from your business go directly to you, the owner. This passthrough means that you’ll report business income when you file your personal tax returns each year.

Your Schedule C, therefore, contains detailed information about your company’s financial performance for the relevant tax year, including:

  • Income
  • Expenses
  • Cost of goods/supplies

 This information will be used to calculate a net profit or loss, which will be recorded on Form 1040. Keep in mind that there is no minimum income requirement. All sole proprietors and single-owner LLCs will have to file Schedule C each tax year.

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What Do I Need to File a Schedule C?

Filing your Schedule C isn’t complicated, though you’ll need some time to complete the details, as well as the information necessary to complete the forms properly. You can expect to need the following pieces of business data for your Schedule C:

  • Your business income statement for the tax year
  • Your company’s balance sheet for the tax year
  • Receipts for any and all business expenses
  • Inventory records (if applicable)
  • Mileage records

If you operate more than one business, you’ll need a separate Schedule C for each one. This setup isn’t terribly common, of course, but if you receive income from multiple side hustles, you’ll have to report for each using its own Schedule C.

How Do I Submit a Schedule C?

Ultimately, you’ll use Schedule C to calculate your net profit or loss for the year. Your net business profit will then be recorded on Form 1040 as personal income. Calculating these figures isn’t challenging, but it can be a bit intimidating if you’re not used to doing your own business tax preparation. We’ll walk you through each step.

Step One: Gather Information About Your Business

Start by gathering as much information as you can about your business. This step is all about data. You’ll want to have records about items such as:

 

  • Your business income for that tax year
  • Cost of goods sold
  • Any business expenses

Remember, you can calculate business expenses the same way you always would, including items such as office supplies, mileage, utilities, meals, and others. 

You won’t have to show supporting documentation when filing your Schedule C, though anytime you’re dealing with the IRS, you’ll want to make sure to have receipts, business documents, and any other paperwork to authenticate your earnings and expenses for the relevant tax year.

Step Two: Calculate Your Gross Profit and Income

Now that you have your information gathered, you can start filling out your Schedule C. Under section I, you’ll report your sales and the cost of goods sold. Your expenses can be reported under section II. 

But here, you’ll also calculate your gross profit from your business. To calculate your gross profit, you’ll first need to determine your net receipts. You can accomplish this through the following calculations:

  • Gross sales – returns and allowances = net receipts
  • Net receipts – the cost of goods sold = gross profit

Once you have your gross profit, you can simply add it to any other income you’ve received to calculate your total gross income.

Step Three: Deduct Your Business Expenses

Check your form, and you’ll see that deductible business expenses are listed on lines 8 through 27. These lines account for expenses such as:

  • Depletion
  • Depreciation
  • Section 179 expenses
  • Employee benefits
  • Insurance
  • Interest
  • Legal and professional fees
  • Office expenses
  • Meals
  • Rental of vehicles or equipment
  • Travel expenses
  • Office supplies and furniture
  • Utilities
  • Wages and employment costs (e.g., benefits, unemployment insurance)

The more deductions you take, the greater your profits will be. But before you start taking deductions, be aware that there may be some stipulations associated with certain categories or expenses. If you’re ever in doubt, ask a tax professional.

Step Four: Deduct Your Home Office

Many small business owners work from home. If that applies to you, you’ll have two options for reporting the expense associated with your home office.

Option A allows you to take a deduction based on the total square footage of your home. 

Using Form 8829, you’ll take the total area of your home, then determine the percentage occupied by your home office. So if your home is 1,000 square feet, and your office is 100 square feet, it occupies 10% of your home. This percentage can be included on line 30 of Schedule C.

Option B is simpler, allowing you to take a standard deduction on home business space up to 300 square feet. 

The IRS allows you to take a $5 deduction per square foot on this space, to a maximum of $1500. This amount will also be reported on line 30 of Schedule C, and there is no separate form to fill out.

Just remember that to take this deduction, your home office space must be devoted to the regular and exclusive use of your business; otherwise, you cannot legally qualify for this deduction.

Step Five: Provide Other Details About Your Deductions

After this, you’ll complete parts IV and V of Schedule C. These are primarily information sections. Part IV asks for information about your vehicle relating to driving frequency, mileage, etc.

Part V will allow you to provide any additional details about other expenses you may be deducting. The total will be recorded on line 27 of Schedule C.

Step Six: Calculate Your Net Profit

You’re now ready to calculate your net income. To do this, simply follow the following steps:

  • Enter your total expenses on Line 28
  • Subtract Line 28 from Line 7. This total will give you your tentative profit on Line 29
  • Subtract business expenses from your home (Line 30) to get net profit (Line 31)

Profit will be reported as personal income, but a business loss must be accounted for on lines 32a and 32b to determine your risk.

Step Seven: Add Schedule C to Form 1040

The net profit/loss from line 31 of Schedule C can now be recorded on Schedule 1, line 12 of Form 1040. You’ll then file Schedule C along with Form 1040 (and any other tax paperwork) when you file your personal income taxes.

Is a Schedule C the Same as a 1099?

A Schedule C is a very different form from a 1099. Form 1099 is used to indicate that a company has paid an employee as a contractor or independent employee. So if you employed these individuals during your tax year, you’ll be responsible for filling out Form 1099s and distributing them to these contractors.

However, Form 1099 may be necessary to fill out Schedule C. Any money you spent on employees would be classified as a business expense, and therefore should be included when filing your Schedule C.

Specifically, part II of your Schedule C will provide space for you to record business expenses, which would include any money you paid to contract employees in the past tax year.

Skip the Headache: Let the Experts Handle Your Schedule C

Filing your Schedule C isn’t difficult, but the easiest thing of all is to turn to professional tax services for all of your tax planning and preparation. Xendoo offers tax preparation for small business so that you can stay focused on your company and not on your tax obligations.

To learn more, simply click here to get started. Our free trial can show you how Xendoo’s innovative features can take the stress out of your tax preparation.

 

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Tax-Reporting Change for Venmo, Cash App, and Others

New Year, New Tax Requirements

Do you use apps like Zelle, Venmo, and Cash App to accept payments from customers? How are you reporting those earnings? In the past, although all business owners were required to report their earnings on their Federal Tax Returns, only those who received payments of $20,000 or more through payment apps also reported their earnings using Form 1099-K. Recently, that rule was changed and will affect a larger pool of business owners going forward.

Will this new rule apply to your business? Keep reading to find out! In this post, we will discuss the new requirement, and how Xendoo can help you stay on top of your tax compliance in this evolving landscape. 

Tax Reporting for Payments of $600 or More

Previously, the reporting threshold was much higher – $20,000 in gross payments, with at least 200 transactions in the current year. The update set a new minimum requirement for filing a Form 1099-K by third party payment apps: business owners who collect payments of $600 or more will now receive Form 1099-K from the payment apps they use, in order to disclose their mobile app earnings to the IRS. 

The new requirement went into effect on January 1, 2022, and will apply to 2022 taxes, which will be filed in 2023. 

Note: This requirement only applies to business-related transactions, not personal transactions. For example, reimbursements from roommates for their share of the rent and monetary gifts from loved ones would not qualify. The selling of personal items at a loss is also excluded, such as a bed purchased for $300 and sold for $100. 

The best accounting practice is to keep personal and business finances under separate accounts, in order to save time and avoid confusion while filing taxes. Consider creating distinct profiles for your business under the payment apps you use.

Do Payment App Users Have to Pay More Taxes?

Now that the reporting amount requirement has been lowered to $600, it is likely that you (and many other business owners) will receive Form 1099-K from the payment apps you use, to file with your Federal Tax Return in the 2023 tax season.

The good news is that this does not mean that business owners now owe additional taxes. The use of Form 1099-K is only a reporting method and an update to the threshold in existing tax laws. 

Adding yet another item to the tax season to-do list may feel overwhelming, but you do not have to handle it all on your own. Below, we will discuss how online bookkeeping and accounting services can help your business remain tax compliant!   

Tax Compliance Done for You 

Business owners deserve expert support as tax compliance rules change. In order to remain tax-ready throughout the year and maximize your return, consider partnering with an online accountant at Xendoo! They will provide: 

  • Online Bookkeeping: Tax savings begin with consistent bookkeeping, which provides the financial visibility needed to make informed, data-driven decisions, now and during tax season. 
  • Small Business Tax Services: Your online CPA will keep track of the changing small business tax regulations on your behalf, so you can focus on what you love – growing your business! They are available when you need them, all year long.    
  • Catch Up Bookkeeping: Are you behind on your bookkeeping? You are not alone! 25% of business owners are behind on their books. Whether you are behind a few months or years, Xendoo can bring your bookkeeping up-to-date, complete with a year-end financial package to prepare your business for tax season. 

Our services are designed to save small business owners time, stress, and money, so they can enjoy financial peace of mind, even when tax requirements change. Are we a fit for your business? Let’s chat! Click here to schedule your free consultation.

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Best FinTech Companies For Tax Management

We frequently discuss the impact of fintech companies on financial services, but taxation is frequently overlooked. Tax filing is an unavoidable requirement, and most people hire professionals to do their taxes for them to avoid any misunderstandings with the government. Taxes can cause stress not only for consumers but also for small businesses. There are numerous fintech companies available to assist both individuals and businesses in not only understanding but also paying their taxes. In this article, we will explore the best fintech companies for tax management.

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Do You Need to File Personal and Business Taxes Separately?

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As a business owner, how do you go about filing personal and business taxes with the IRS? The answer to this question actually depends on the way your business is structured, so there’s not a one-size-fits-all approach to filing small business taxes.

But that doesn’t mean that tax season needs to cause you stress. We’ve prepared this helpful guide explaining tax preparation for small business owners in the hope that it will help you learn to meet the requirements of both your personal and business taxes.

Are Business Taxes and Personal Taxes Filed Together?

When your business earns money, you’ll have to submit a tax return to the IRS for the income you receive. But does that mean you’ll be filing personal and business taxes together? That depends entirely on the structure of your business.

For example, many small businesses are set up as pass-through entities. This setup means that any income the business earns is passed directly to the business owner. Such pass-through means that rather than filing separate tax returns, you’ll simply pay the tax on your business income via your personal tax return.

Sole Proprietorships and Single-Owner LLCs

Some of the most common pass-through entities include sole proprietorships and single-owner LLCs (see below for other types of LLCs).

The IRS does not consider these business types to be separate tax-paying entities. That means you can simply submit your personal tax return (Form 1040) along with any related schedules or documents, showing income that came from your business and was passed on to you personally.

Some businesses may be asked to file information returns, which simply detail your business earnings to the IRS. You’re not subject to any separate taxation on this income; information returns simply function to report your income to the IRS in an effort to be thorough. Ask a tax advisor if your business needs to file one of these documents.

Partnerships

In a partnership, each partner will pay tax based on business income on their personal tax return (Form 1040). 

Partnerships, therefore, follow the following process:

  • Partnerships report income and deductions to the IRS using Form 1065
  • Partnerships distribute a K-1 to each partner indicating their portion of the profits
  • Each partner will include the data from the K-1 on their personal tax return

This approach means that partnerships will also not file personal and business taxes separately, though you’ll still need to file Form 1065 with the IRS. 

S Corporations

S corporations are also considered pass-through entities, which also means you won’t be filing a separate business tax return.

However, S corporations work a bit differently than the examples we listed above. For one thing, S corporations pay taxes through their owners, more commonly known as shareholders. The process will therefore look something like this: 

  • S corporations file information return Form 1120-S to report their income
  • Shareholders receive form K-1 to show their portion of the company’s profits
  • Shareholders report data from the K-1 on Form 1040 Schedule E

Additionally, if any shareholders participate in managerial decisions, the IRS may classify them as employees. If so, you’ll have to ensure that these shareholders receive Form W-2 in addition to their K-1 and pay taxes on both sets of earnings.

C Corporations

C corporations are the one business type that must file separate business tax returns. The IRS considers these companies separate tax-paying entities, and if you operate a C corporation, you’ll report your company’s income to the IRS using Form 1120.

If any shareholders receive dividends, then the C corporation must distribute Form 1099-DIVs so that shareholders can report this income on their personal taxes.

How do you Separate Business and Personal Taxes?

If you operate a sole proprietorship, it can be especially difficult to keep your personal and business taxes separate. The best way is to maintain detailed, accurate books throughout your fiscal year so you have an accurate understanding of what your business earns.

Many business owners take active steps to keep their personal and business finances completely separate. Opening up a business bank account, for example, can make it easier to distinguish between personal and company funds, plus it will shield you from personal liability if your business ever goes under.

Are LLC and Personal Taxes Separate?

While individual states recognize limited liability companies (LLCs), the federal government does not. This distinction means that when filing personal and business taxes, your LLC will have to be taxed in the same way as one of the other major business entities:

  • Sole proprietorship
  • Partnership
  • S corporation
  • C corporation

For instance, some LLCs are classified as single-owner LLCs. This designation means that the owner will be taxed in the same way as a sole proprietorship and only be required to submit a personal tax return.

If your LLC has more than one owner, your business is automatically taxed as a partnership. This classification also means that the business will not pay taxes, but each partner will include business income on their individual tax return.

An LLC can also be taxed as an S corporation, which means you’ll have to fulfill your obligations to any shareholders you have.

However, an LLC can also be taxed as a C corporation. When this happens, you will have to file a separate business tax return for your company using Form 1120.

In other words, you can only file separate LLC taxes if your LLC meets the criteria to be taxed as a C corporation. In all other circumstances, you’ll simply file your LLC taxes as part of your personal income.

Are Personal and Business Taxes the Same?

As long as your business meets the criteria of a pass-through entity, your business income and personal income are considered to be the same. Granted, some business owners may have additional income apart from their business, but any profit from their business is classified as personal income unless they are set up as a C corporation.

Therefore, instead of filing personal and business taxes separately, most business owners will simply report business earnings on their individual tax forms.

That also means that your business will be taxed on the same basis as your personal income. The IRS does not impose a different tax percentage or tax bracket for business income vs. personal income. All of your income will be treated equally and be taxed at whatever tax bracket you fall into.

Can I File My LLC and Personal Taxes Together?

If you operate an LLC, your small business taxes will depend on how your company is recognized by the IRS. At the federal level, LLCs are not recognized. Therefore, you’ll have to pay taxes the same way you would a sole proprietorship, partnership, or C corporation.

To be clear, this means that you’ll nearly always file an individual tax return, with no separate tax return for income from your LLC. Single-owner LLCs will simply file their taxes in the same way as a sole proprietorship, reporting business income using Form 1040.

LLCs with multiple owners will be taxed in the same way as partnerships and have to report income to the IRS using Form 1065. Each partner will receive a K-1 detailing their portion of the profits. While the IRS receives the notification of the profits, the LLC will not pay taxes separate from the personal tax returns of each partner.

LLCs taxed as S corporations will likewise submit Form 1120 to the IRS and distribute K-1s to their shareholders, who will report income on their personal tax returns.

The only instance in which an LLC will file a separate tax return is when they are set up as a C corporation, which is treated as a separate taxable entity by the IRS. This designation means that your business will have to file Form 1120 with the IRS and file a separate business tax return based on company earnings.

Thankfully, the latter situation is relatively rare, at least for the small business community. In most cases, LLC owners will simply include earnings from their company in their personal income and then pay these taxes when they file their personal tax returns in April.

Tax Preparation Made Easy

Of course, the easiest solution of all is to have someone else do the work for you. Why focus on last year’s earnings when this year has so much untapped potential? At Xendoo, our financial wizards can provide expert-level tax services that let you meet your obligations and deadlines, all without you lifting a finger.

Xendoo will help you file your business taxes and your personal taxes, and our team of experts is familiar with every type of business you can throw at us. You’ll not only save yourself the headache of filing your taxes, but you’ll also be better prepared for next year.

As every business owner knows, tax season is always right around the corner. Give us a click today, and sign up for our free trial offer. We can keep you on target for your personal and business taxes and help you stay focused on your business.

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When Can You File Small Business Taxes in 2022?

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This year, make things easier on yourself by planning ahead. You’ll thank yourself for filing business taxes according to the prescribed deadlines. Not only will this save you from sweating over a shoebox full of receipts, but making on-time tax payments will save you from any late fees or interest payments.

To help you with this process, we’ve put together this complete guide for filing business taxes in 2022. You can use the information and the dates we provide to form a strategic plan for preparing and filing your taxes in 2022.

What Is the Business Tax Filing Deadline for 2022?

You may have already marked April 18, 2022, on your calendar to remind you to pay your personal income taxes. This date is a slight change from previous years since April 15 (the common tax deadline) happens to fall on Good Friday.

But what about your small business taxes? The deadlines for filing business taxes depend on how your business is structured. Here are the deadlines for common business types:

Sole Proprietors, LLCs, and C Corporations

April 18, 2022, is the tax deadline for sole proprietors, limited liability companies (LLCs), and C corporations. They all must all file their taxes by this common April due date.

These businesses can also file for a tax extension, and this extension must also be received by April 18. Once your extension is approved, your new tax deadline becomes October 17, 2022.

It’s important to remember that your tax return must be at least postmarked by the due date. If you choose to send a paper return through the mail, take this into consideration to ensure you comply with the April tax deadline.

S Corporations and Partnerships

Some business types must file their taxes earlier than the April 18 tax deadline. For S corporations and partnerships, the deadline is March 15, 2022. 

These businesses can also file for a six-month tax extension, which places their final deadline at September 15, 2022. As with the return itself, applications for a tax extension must be postmarked by March 15, 2022.

Estimated Tax Payment Deadlines

It’s quite common for business owners to make estimated tax payments. These payments are made in each quarter, though the deadlines don’t always fall at precise intervals. For the 2022 calendar year, businesses must adhere to the following quarterly tax payment schedule: 

  • April 18, 2022 (for income received from Jan through March)
  • June 15, 2022 (for income received from April through May)
  • September 15, 2022 (for income received from June through August)
  • January 16, 2022 (for income received from Sept through Dec)

Keeping these estimated tax payment deadlines on your calendar can ensure that you meet your tax obligations. Keep in mind it’s better to overpay than to underpay, as the latter can result in a penalty if your payments are too low.

When Can I Do My Taxes for 2022?

We recommend that business owners not wait until April 17 when filing business taxes. Some entrepreneurs may be particularly eager to file their taxes, hoping to take advantage of deductions based on careful planning on their previous year’s taxes.

Generally, the IRS will begin accepting electronic tax returns by late January. In 2021, the IRS didn’t begin accepting returns until February 12, though this seems to be an anomaly. By January 24, you’ll likely be able to file a business tax return.

This date, of course, assumes you’re ready. Some business owners prefer to have a financial professional or tax services give their tax return a final check before filing to verify its accuracy and ensure that they received all of the deductions and credits to which they’re entitled.

Key Dates

Ready to mark your calendars? Here are all of the important dates for filing business taxes in 2022. You can bookmark this page for future reference or transfer this data to your personal or company calendar, so you never miss a deadline.

  • January 20, 2022: Employees who earned over $20 from tips in the month of December must report this income to their employers using Form 1070.
  • January 15, 2022: Your fourth-quarter estimated tax payment for 2021 is due on this date.
  • January 31, 2022: Employers must send W-2 forms to their employees and 1099 forms to their contractors for earnings from 2021.
  • February 10, 2022: Employees who earned over $20 in tips during the month of January must report this income to their employers using Form 1070.
  • February 15, 2022: Financial institutions must send Form 1099-B (sales of stocks/bonds/mutual funds through a brokerage account), Form 1099-S (real estate transactions), and Form 1099-MISC unless the sender is reporting payments in boxes 8 or 10.
  • February 28, 2022: Businesses must mail Forms 1099 and 1096 to the IRS.
  • March 1, 2022: Farmers and fishermen must file individual income tax returns (unless they paid 2021 estimated tax by Jan 18, 2022).
  • March 10, 2022: Employees who earned over $20 in tips during the month of February must report this income to their employers using Form 1070.
  • March 15, 2022: Corporate tax returns (Forms 1120, 1120-A, and 1120-S) for the tax year 2021 must be filed by this date, or you may file for a six-month extension using Form 7004 (for corporations using the calendar year as their tax year), or Form 1065 (for filing partnership tax returns).
  • March 31, 2022: This is the deadline to e-file Forms 1099 and 1098 to the IRS (but not Form 1099-NEC).
  • April 11, 2022: Employees who earned over $20 in tips during the month of March must report this income to their employers using Form 1070.
  • April 18, 2022: Household employers who paid $2,300 or more in wages in 2021 must file Schedule H for Form 1040.
  • April 18, 2022: Individuals must file their personal tax returns for 2021, or Form 1040 or Form 1040-SE. Form 4868 must also be filed by this date in order to request an extension.
  • May 10, 2022: Employees who earned over $20 in tips during the month of April must report this income to their employers using Form 1070.
  • June 10, 2022: Employees who earned over $20 in tips during the month of May must report this income to their employers using Form 1070.
  • June 15, 2022: Second-quarter estimated tax payments for the 2021 tax year must be received by this date.
  • June 15, 2022: U.S. citizens living abroad must file individual tax returns (or Form 4868) by this date to receive a four-month extension.
  • July 11, 2022: Employees who earned over $20 in tips during the month of June must report this income to their employers using Form 1070.
  • August 10, 2022: Employees who earned over $20 in tips during the month of July must report this income to their employers using Form 1070.
  • September 12, 2022: Employees who earned over $20 in tips during the month of August must report this income to their employers using Form 1070.
  • September 15, 2022: Third-quarter estimated tax payments for the 2021 tax year must be received by this date.
  • September 15, 2022: Partnership and S-corporation tax returns for the tax year 2021 must be filed by this date if an extension had been previously granted.
  • October 11, 2022: Employees who earned over $20 in tips during the month of September must report this income to their employers using Form 1070.
  • October 17, 2022: Final deadline to file individual or corporate tax returns for 2021 using Form 1040 and Form 1120 (if an extension had been previously granted).
  • October 17, 2022: Eligible taxpayers who earned $72,000 or less in adjusted gross income during 2021 can use Free File to file their returns by this date.
  • November 10, 2022: Employees who earned over $20 in tips during the month of October must report this income to their employers using Form 1070.
  • December 10, 2022: Employees who earned over $20 in tips during the month of May must report this income to their employers using Form 1070.

Remember, if you miss one of these important dates, you could face a penalty. At the very least, you might end up paying additional interest on the taxes you owe, so it’s important to keep these dates on your calendar and meet any deadlines that might apply to your business.

Tax Preparation and Planning Made Easy

Filing small business taxes doesn’t have to be a headache. In fact, with the right planning and preparation, your tax return can be the culmination of a year’s worth of hard work and careful strategy. 

When you plan ahead for your next tax year, you can take full advantage of any deductions, credits, or other features that can save you money and keep your business financially healthy.

At Xendoo, we can help with that. Our team can help you with monthly bookkeeping in addition to helping you plan and prepare your business tax returns. Our tax preparation for small business services can help you save money and meet the IRS requirements, all while relying on our professional team to keep things running smoothly.

Want to learn more? Click here to get started, and our free trial can show you how Xendoo’s innovative features can take the stress out of your tax preparation.

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4 Ways Small Business Owners Can Stay Tax Compliant

The Details Matter 

A crucial component of being a small business owner is meeting certain tax requirements in order to remain compliant in the eyes of the IRS. It can feel overwhelming to keep track of every rule and deadline, especially while juggling countless other business responsibilities day in and day out. 

That is why the Xendoo team has created this guide to help business owners stay on top of their tax requirements, remain compliant throughout the year, and effortlessly maximize their return! 

Keep Your Bookkeeping Up-to-Date

Up-to-date and accurate bookkeeping saves business owners time, stress, and money during tax season. 

By keeping your books up-to-date, you can be confident that you are reporting your income and expenses correctly, paying the proper amount in taxes, and paying your estimated taxes in a timely manner, which produces a stress-free tax season. Instead of playing phone tag with your finance professional over missing documents, you can work with an online accountant who will determine the tax deductions you qualify for and file your taxes on your behalf, so you can get back to what you love – growing your business! 

Pay Self-Employment Tax

In typical payroll situations, self-employment taxes are split between the employee and employer, each paying 7.65%. Self-employed individuals pay both halves: 12.4% for Social Security and 2.9% for Medicare – 15.3% all together, which applies to business profit. For example, if your business is an LLC, and made $100,000 in profit, you will pay $15,300 in self-employment taxes. Self-employment income is reported on the Schedule C that accompanies Form 1040. As a rule of thumb, self-employment taxes are required if you made $400 or more in net earnings from self-employment. 

While self-employment taxes cannot be waived, there is a way to decrease them. 

Self-employment tax payments can be decreased by electing to be taxed as an S-Corporation. S-Corporation owners pay themselves in two different ways: salary and distributions. While the salary is subject to self-employment taxes, the distributions are exempt, which allows S-Corps to avoid double taxation. 

It is always best to speak to a small business tax accountant. They will get to know your business, and determine if S-Corp Election is right for you. 

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Pay Quarterly Estimated Taxes 

Because self-employed individuals do not have taxes withheld from their paychecks like W-2 employees, they pay quarterly estimated taxes in order to cover Social Security, Medicare, and income tax. Those that expect to owe $1,000 or more in income tax are required to make quarterly estimated tax payments, and will file using Form 1040-ES.

To ensure that your estimated tax payments are made on time, mark your calendar with the upcoming deadlines: 

  • January 18, 2022 (the final installment for 2021)
  • April 18, 2022
  • June 15, 2022
  • September 15, 2022 
  • December 15, 2022 

Now comes the fun part: calculation! By dividing last year’s tax liability by 4, you can determine what you will owe each quarter for this year. 

For example, if you paid $10,000 in taxes last year, you will owe $2,500 in quarterly estimated taxes this year ($10,000/4 quarters = $2,500).

If your income fluctuates, consider calculating your payments based on your quarterly earnings instead. You can also take advantage of Xendoo’s small business tax services. Our expert online CPAs are available all year long, so you can make informed decisions each quarter, and maximize your return when tax season arrives! 

To learn more about calculating your quarterly estimated tax payments, click here. 

Separate Personal and Business Bank Accounts

One of the most straightforward ways to remain tax compliant is to separate personal and business bank accounts. 

Using a business bank account and credit card ensures financial accuracy, which is crucial to tax compliance. Instead of sorting through personal and business expenses while bookkeeping, you will be certain you are only recording relevant expenses, and your books will reflect your true financial position. 

If you utilize personal assets for your business, like a home office or vehicle, keep detailed records of when and how they are used in order to support the deductions you claim. When tax season arrives, you will have the financial clarity needed to accurately report your financials to the IRS. 

Expert Tax Support, All Year Long 

You do not have to lose sleep over tax compliance. Xendoo is here to help! We provide online bookkeeping services, as well as catch up bookkeeping, so you can focus on growing your business. Enjoy peace of mind knowing your financials are always up-to-date, and that your business is always tax-ready.

Let’s chat! We would love to get to know your business. Click here to schedule your free consultation.

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How Do I Pay Myself and My Taxes as a C-corporation?

When businesses are first created, every responsibility falls on the business owner. As they juggle increasing sales, customer service, marketing, and even bookkeeping and accounting, two questions come to mind – how do I pay myself? How do I pay my business’s taxes? 

Self-payment for small business owners is far from simple. There are certain requirements for the amount you pay yourself, and even how you receive payments. That is why the Xendoo team has created this guide to help you navigate self-payment and taxes as a C-corporation owner!

How to Pay Yourself as a C-corporation: Salary or Dividends  

The payment you receive depends on your role within the company. C-corporations are made up of the following roles:

Xendoo provides financial visibility to C-Corp owners through online bookkeeping, accounting, and tax services.

Directors, officers, and employees in a C-corporation take a salary, which is subject to payroll taxes. Shareholders can take a salary and dividends, which are allocations of stock from retained earnings, if the company chooses to distribute profits. Some shareholders opt not to take dividends, which will be discussed shortly. 

In smaller C-corporations, one person can act as the shareholder, director, officer, and employee. Shareholders can also be involved in the day-to-day operations of the company, and are referred to as shareholder-employees. 

How Do I Pay My Taxes as a C-corporation?

C-corporations are considered separate legal entities from their owners. This means that the business is taxed at the corporate level, with dividends being taxed again at the shareholder level, resulting in double taxation. Smaller companies may choose to avoid dividend payments for this reason. 

C-corporations file their taxes using Form 1120, which reports the business’s income, losses, credits, and deductions. If shareholders take dividends, they use Form 1099-DIV to report the amount that was distributed to them. 

To ensure that your C-corporation taxes are filed correctly and on time, you can partner with an online CPA. They will help you to maximize your tax savings and enjoy peace of mind during the most stressful time of the year.

Are Salaries and Dividends Tax-Deductible?

Dividends are not tax-deductible expenses, but shareholder-employee salaries are – as long as they are reasonable. Some business owners may take high salaries in order to reduce the company’s taxable income. However, if the salary is too excessive, it could be reclassified as a dividend payment, taxed at the shareholder level. The company would then lose that excess salary as a deduction. On the other hand, if the salary is too low, it can be considered an attempt to avoid employment tax liability, which could draw scrutiny from the IRS. 

Every business is different, so the salaries that business owners take will vary. To get started, you can take a look at the factors the IRS uses to determine a reasonable salary for shareholder-employees in C-corporations: 

  • What comparable businesses pay for similar services. If an employee’s salary falls in line with what similar businesses pay for that position, the salary will be considered reasonable. 
  • Character and condition of the corporation. If the company is performing exceptionally well, an above-average salary can be considered reasonable. 
  • The role of the employee within the business. The IRS considers the hours the employee works, the duties they perform, and the contributions they make to the success of the business. If the employee receives a raise, they must also receive an increase in responsibility for their salary to be considered reasonable. 
  • Internal consistencies in establishing compensation levels. Inconsistencies in the compensation of other employees can suggest that the employee’s salary is unreasonable. 
  • Conflicts of interest in setting compensation levels. Conflicts of interest occur when there is a clash between personal interests and professional obligations. For example, if a shareholder attempted to disguise dividends as a deductible salary, the IRS would deem the salary unreasonable. 

You do not have to figure your salary out on your own. Discuss your options with an online C-corporation accountant at Xendoo today! 

Xendoo is Here for You

Every business owner deserves an accounting team that is dedicated to their financial success. Xendoo provides online bookkeeping and accounting services to C-corporation owners, so they can make the most informed decisions for their business!

We would love to get to know your business. Click here to schedule your free consultation. 

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