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Do You Need to File Personal and Business Taxes Separately?: A Small Business Guide

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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 FiledTogether?

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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Dates and Deadlines: When You Can 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. 

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.

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. 

Want to learn more about the different business entity types? Click here.

Xendoo provides online bookkeeping, accounting, and tax support for your partnership business.

How Do I Pay Myself and My Taxes as a Partnership?

Every partnership owner faces the unique challenges of self-payment, tax filing, and maximizing their tax savings. Although they would rather focus on growing their business, taxes and payroll often take up too much of their valuable time. 

If the self-payment struggle is all too familiar to you, Xendoo is here to help. We have created this guide to help you pay yourself and maximize your savings as a partnership owner!

How to Pay Yourself as a Partnership Owner: The Owner’s Draw or Guaranteed Payments 

Partnership owners pay themselves by taking an owner’s draw or a guaranteed payment, with profits distributed to each member based on the partnership agreement. Note that partnership owners are not permitted to take a salary, as the IRS states that you cannot be both a partner and an employee. 

The Owner’s Draw

An Owner’s Draw differs from a regular salary in that you can take money from the company’s earnings as needed, rather than on a scheduled basis. Depending on how well your business is performing, you can draw more or less, allowing for flexibility in your payments.

 

If your business is profitable, subtract liabilities (any debt your company owes) from assets (items of value the company owns). The remaining amount is referred to as ownership equity, which is what you will take your draw from. This amount is reflected on the Balance Sheet, under Owner’s Equity. Once you determine the amount you want to take, it can be transferred from your business bank account to your personal account.  

 

Because the Owner’s Draw is taken from ownership equity, it reduces the funds that can be used for operating or growing the business. Partnership members must balance how much they need to support themselves and what the business needs to thrive.

 

Guaranteed Payments

What if your business is in the early stages, and not producing profit yet? The solution lies in guaranteed payments. 

 

Guaranteed payments are a minimum amount that is guaranteed to be paid to a partner regardless of business profitability. The payments must be made even if the result is a loss for the business. They provide a consistent income to partners as the business grows and becomes profitable. Note that if the business is operating at a loss and providing guaranteed payments to partners, that loss must be funded through debt or investments (equity) to ensure that the necessary expenses of the business can be paid. 

 

Discuss your options with an online partnership accountant at Xendoo. They will provide the financial insight needed to make the most informed decision regarding self-payment in your partnership! 

How Do I Pay My Taxes as a Partnership Owner?

Partnerships file their taxes using Form 1065, which determines that each partner is reporting their income correctly. Each partner must complete an accompanying Schedule K-1, which breaks down their share of the profits and losses. They also report this information on their individual tax return (Form 1040), with a Schedule E attached. The owner’s draw is not subject to payroll taxes, but it is considered personal income and is taxed accordingly. If partnership members take the owner’s draw, they must pay estimated taxes, which helps decrease their tax bill. 

 

Guaranteed payments are tax-deductible to the partnership, and are treated as self-employment income for the partnership members. They are reported on the Schedule K-1, and noted as income on the Schedule E. If the partnership members choose to take guaranteed payments, they will pay both income tax and self-employment taxes as individuals. 

What are the Tax Advantages of Filing as a Partnership? 

No Double Taxation 

The partnership itself does not pay income taxes. Partnerships are considered “pass-through entities”, meaning that profits and losses “pass through” the business to the partners, with each paying a portion of the total income tax of the business’s earnings. In this situation, profits and losses are only taxed at the personal level, which allows partnerships to avoid double taxation. 

 

Even with a significant tax advantage, taxes can still be stressful. Talk to a small business CPA at Xendoo. We provide online accounting for partnerships, as well as online bookkeeping services so you can stay tax-ready all year long.

Xendoo is Here for You

You are not alone as you navigate self-payment, tax filing, and all the financial ins and outs of your partnership. Xendoo is here to help! Our online bookkeeping and accounting team provides partnership owners with the financial insight needed to make the most informed decision regarding self-payment and partnership taxes! 

 

Are we a fit for your partnership? Get started today with a free consultation.

 

Want to learn more about the different business entity types? Click here.  

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2021 Ultimate List of Small Business Tax Deductions

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With the year coming to an end, tax return season is just right around the corner. For small businesses, that means being prepared to find all of the small business tax deductions you can to minimize your payout to the IRS. 

Get prepared for tax season with these small business tax deductions that may apply to your business. 

Tax Dates

When filing taxes, knowing the deadlines is an essential part of being organized and prepared. Missing a deadline could result in paying interest on any amount due. 

Individual tax returns are due by April 18, 2022. However, when a filing extension is granted, the date is extended to October 15, 2022. This extension can increase the time you have to corral different small business tax deductions. 

For most small businesses, a quarterly filing is beneficial for keeping payouts spread out throughout the year. These quarterly due dates differ according to the types of filings. Note that small business tax deductions will also have to be calculated quarterly and not annually if you file quarterly. 

The first quarterly filing date for those filing a Form 1040-ES, the deadline to have them postmarked and submitted, is April 15, 2022. The second quarterly filing date for self-employed workers is June 15, 2022. Make sure all payments and forms are turned in by this day to avoid a penalty. 

The third quarterly filing date is September 15, 2022. This date is also the last one in the 2022 calendar year. The fourth quarterly filing date is January 15, 2023. While it is in 2023, it is the deadline for quarterly 2022 taxes to ensure all December 2022 taxes are included. It is also your last chance to claim small business tax deductions for the year. 

Deductions

Learning what deductions are and how they can help lower payouts is important for all business owners alike. Some of the common small business tax deductions include:

  • Office supplies and expenses
  • Rent
  • Family members’ wages
  • Advertising and marketing
  • Banking fees
  • Car expenses
  • Charitable deductions made for a business purpose
  • Charity or traveling to perform charitable services
  • Conventions and trade shows
  • Eating out while you’re traveling for business
  • Education and training for your employees
  • Employee benefits
  • Equipment
  • Equipment repairs

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

Office Supplies and Expenses

There are many things to buy for a business startup in an office setting, from purchasing all new supplies to ordering more printer paper throughout the year. However, expenses and supplies are different things.

Typical office supplies are:

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

Common expenses include:

  • Software systems
  • Cleaning services
  • Computers
  • Smartphones
  • Cloud services
  • Website fees

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

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. Sending letters to customers or mailing a check to pay rent would be considered office supplies for small business tax deductions. 

Rent

Having a physical store or business and paying rent qualifies for a tax deduction. For many small business owners, rent is a rather large expense that you can write off. The exception to this is rent paid for a residential dwelling out of which you work. 

Family Members’ Wages

Having family members who work in your small business can be a great deduction, too. Minors who perform legitimate work for the business and are under 18 may be exempt from paying FICA. If the family member is under 21, you may be eligible to avoid paying FUTA for them. 

Spouses make great deductible employees as well, offering great health insurance exemptions. Having a dependent on your health insurance plan can be very costly, but employee’s plans are often much cheaper. The IRS also does not set a maximum on how much employers may pay for insurance plans.

Advertising and Marketing

Marketing and advertising are a huge part of getting the word out about your business. Many business owners set aside a large budgeted amount each year to go towards this expense. 

From social media platforms to signs and bus ads, all marketing and advertisements are tax-deductible. A few of the most common advertising expenses are social media campaigns, SEO services, email marketing, and promotional products.

When companies hand out t-shirts, pens, or any promotional products with their name or logo on them, this is considered to be a form of advertisement. These swag products are tax deductions as well as great tools for marketing.

Just as shipping products is considered to be a cost of goods, a website that sells your products is also deductible under that category. A website used solely to advertise your business is tax-deductible as an advertisement.

Banking Fees

When opening a new business, it’s a good idea to open separate bank accounts and credit cards for the company to differentiate its accounts from your accounts. 

The bank will likely charge annual fees, overdraft fees, interest, and processing charges. Many small businesses use Paypal, Square, or other services to take credit or debit card payments. These services typically charge service fees. All of these fees from financial institutions can be claimed as tax deductions. 

Car Expenses

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

Mileage rate deducting allows business owners to track how many miles have been driven for business purposes and multiply that by the average mileage deduction rate for that year. 

An actual expense method requires receipts of gas, all vehicle costs, including repairs, insurance, and registration payments, to be supplied and multiplied by the number of miles driven. It is best to choose the method that gives the greatest deduction. 

Charitable Deductions for Business Purposes

Many businesses make donations to charities in the form of physical goods donations 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 a receipt is not available for cash donations, acknowledgment is needed if the gift is over $250 in one single offering.

Charity and Charitable Traveling 

For many businesses, charity work is a great way to give back to the community that they work hard to serve. Their volunteer time is valuable, as is the investment they make in traveling to these events. 

According to the IRS, travel and other out-of-pocket expenses not reimbursed by the charity are eligible for a deduction. These travel expenses include flights, gas, hotels away from home, and meals.

Conventions and Trade Shows

Trade shows and conventions are ultimately necessary for many artists and home-based small businesses to obtain customers and sales. These shows can get expensive 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, business owners can build them into substantial small business tax deductions.

Dining Expenses

Wining and dining clients is not a new practice for business owners. It’s a time to sit down for a meal and convince clients to choose your expertise or products for their business or personal use. 

These dining experiences must follow specific guidelines. They must be necessary and not outside of typical business arrangements. 

Rewarding workers for their hard work with a delicious delivery is also a tax-deductible situation. For those who throw office parties and have them catered, this expensive meal may qualify as a deduction. 

Education and Training 

Many businesses require employee training for OSHA safety, insurance license exams, and other certifications. 

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 money lost to taxes by increasing deductions. 

Employee Benefits

Many employee benefits can be costly for employers. Benefits are a good way to improve the quality of the workplace and increase staff morale. Health insurance is quite expensive for employers, but it greatly benefits the employees. Under certain guidelines, it may be tax-deductible. 

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

Equipment

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. Equipment deductions apply to any type of machinery, computers, or other items necessary to perform a business. These items will often depreciate with time.

Equipment Repairs

Equipment repairs are deductions that are separate from equipment purchases. Whenever a tech business needs a computer repair, this would fall under the equipment repair category.

Businesses that use large, heavy machinery that breaks down can use this deduction to deduct costs associated with repairing their equipment. 

Maximize Savings with Xendoo

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. 

For small business owners, time is money. You could spend that time working on finding new customers and less time stressing over taxes. While having 2021 taxes prepared, Xendoo tax advisors can also look over previous years’ taxes to ensure accuracy. 

Organized Taxes

Don’t let the tax season be filled with chaos and questioning deadlines. Knowing someone else is taking care of the paperwork and checking off the list of things needing to be done can be a huge stress relief for business owners. 

Keeping all forms organized can help you find documents easier and turn in records on time. Missing a deadline can be an expensive mistake. Allow a tax prep professional to keep up with all of the small business tax deadlines.

There are many forms to file as well as keep up with. Instead of flipping through them all, trying to find the right one, or filling out unnecessary paperwork, use a checklist from Xendoo, so you know what you have to file.

The idea of facing an audit is stressful for many business owners. Be less likely to face an audit by having your taxes prepared by a professional. We will fill out the forms correctly and promptly. 

Access to Professionals

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

By taking advantage of the set rate for Xendoo services, business owners can ask questions without paying by the hour to an individual accountant. This approach can increase your savings dramatically. 

Affordability for Small Businesses

Instead of spending hundreds of dollars for an hourly CPA or bookkeeping service, save money with Xendoo with a set monthly rate. Xendoo offers both bookkeeping and tax preparation services for small business owners. 

Contact Xendoo Today

Tax season can be a stressful time for many businesses. There are so many deductions to keep in consideration that need to be filed under the right category. Know that your business tax returns are being handled properly and promptly with our tax services. 

Call Xendoo today to schedule a consultation with one of our professionals to prepare your tax preparation checklist for 2021.

Man working with a laptop

Tax Savings for Small Business Owners: Bonus Depreciation and Section 179

When making a major purchase for your business, you are expected to spread the tax deduction out over the lifespan of that purchase, which provides small tax savings over the years. But, why wait? Business owners can take advantage of Bonus Depreciation and Section 179 to invest in their businesses, resulting in an enormous tax break! 

In this blog post, we will explain how the deductions work, and how you can use them to maximize your tax savings. 

How Do the Deductions Work? 

Section 179 allows you to deduct the full purchase price from a qualifying new or used business asset, while Bonus Depreciation allows you to deduct a percentage. Currently, Bonus Depreciation is being offered at 100%, so both options will allow you to write off the entire cost of your purchase in the same year. 

There are certain criteria that the asset must meet to qualify for the deductions:

  • Tangible Items. This includes, but is not limited to, physical items such as office furniture, equipment, computer software, and business vehicles exceeding 6,000 pounds. 
  • Interior Improvements. While land and buildings do not qualify for Section 179, interior improvements do. Examples include, but are not limited to, fire alarms, security systems, roofing, and HVAC. To qualify for Bonus Depreciation, qualified improvements must have been completed after the building became operational. Building enlargements, elevators, escalators, and any internal structural framework changes are ineligible. 
  • Used for Business. Assets must be used for business purposes more than 50% of the time to qualify for Section 179 and Bonus Depreciation.

There are many major purchases that business owners can make, and claim these deductions. If you have made or plan to make a major purchase for your business and are unsure if it qualifies, speak with an online accountant at Xendoo to learn more. 

Are There Limits to the Deductions?

For 2021, Section 179 is limited to a maximum deduction of $1,050,000, and the total equipment purchased by a business cannot exceed $2,620,000. Bonus Depreciation is currently being offered at 100%, but is scheduled to decrease to:

  • 80% after December 31, 2022 and before January 1, 2024.
  • 60% after December 31, 2023 and before January 1, 2025.
  • 40% after December 31, 2024 and before January 1, 2026.
  • 20% after December 31, 2025 and before January 1, 2027.

If you are considering utilizing Bonus Depreciation, now is the time to do so, as the percentage you can claim will start to decrease soon. 

Section 179 allows you to split the deduction over time. For example, you could write off half of the purchase up front and spread out the rest over the next few years, allowing for greater flexibility on your deduction. It should also be noted that your business must have a taxable profit to claim Section 179, as the deduction is limited to your business’s net income. 

For example, if you have a net income of $60,000, and you purchased $70,000 worth of equipment, the deduction will be limited to $60,000. You can carry the remaining $10,000 deduction into the next year, as long as your income allows for it.

Bonus Depreciation requires that you deduct the entire cost within the year. However, there are no income restrictions on this deduction, unlike Section 179. Even if you make a purchase that exceeds your net income, there will not be a limit to the deduction, as it covers 100% of the purchase.  

Business owners can claim both Section 179 and Bonus Depreciation, but Section 179 must be taken first. They must also be applied to different purchases. For example, you could claim Section 179 for a business vehicle, and Bonus Depreciation for office furniture. Consult with one of Xendoo’s online Tax CPAs to discuss all your options.

Maximized Taxes. Minimize Stress. 

Bonus Depreciation and Section 179 can provide substantial tax breaks for your business. The Xendoo team is here to help you maximize your tax savings with these incredible opportunities! 

Let Xendoo handle the hassles while you put more money in your pocket and take your time back. Our expert bookkeepers, accountants, and CPAs can help you navigate your financials throughout the year!

Schedule a call with one of our online accountants to get started.

How to pay yourself if you're an S Corporation

How Do I Pay Myself and My Taxes as an S-Corporation?

When businesses are born, business owners are likely not daydreaming about taxes and payroll. Yet, they still face the unique challenge of figuring out how to pay themselves, file their taxes, and maximize their tax savings.

As their business grows, many business owners opt for S-Corporation Election due to the tax advantages it presents, but they must be mindful of how much they pay themselves, in order to remain compliant in the eyes of the IRS. Unless they moonlight as an experienced accountant, self-payment and tax filing can be confusing and stressful for small business owners – understandably so!

Like most things involving taxes, it gets complicated. That is why we have created this comprehensive guide to help business owners pay themselves and maximize their savings as an S-Corporation!

 

How to Pay Yourself as an S-Corporation: Salary and Distributions

Under other business structures, you simply take a share of company profit as your payment. In an S-Corporation, you have the option to pay yourself in two ways: 

  • Salary, your wages or reasonable compensation. This is considered taxable income to the payee by the IRS.
  • Distributions, the earnings that are paid as distributions to you as the owner. These are not employee wages and are not taxed as self-employment income in an S-Corporation.

For example, if your business produced $100,000 in profit, you could take a reasonable salary of $40,000, and the remaining $60,000 as a distribution. It may seem strange to receive payment in two different forms, but it comes with significant tax savings, which will be discussed shortly. 

How Much Do I Pay Myself as an S-Corporation? 

The short answer is, it depends.

S-Corporation shareholder-employees are required to receive a reasonable salary, which is generally defined as at least what other businesses would pay someone in that role for similar services. Every business is different, so the exact amount that business owners pay themselves will vary. 

To determine your reasonable salary, you can start with the U.S. Bureau of Labor Statistics, which provides insight into compensation across different industries. This will give you an idea of what you should be paying yourself based on your field and the profit you produce. 

Some of the factors the IRS considers to determine a reasonable salary are:

  • Training and experience
  • Duties and responsibilities
  • Time and effort devoted to the business
  • Distribution history
  • Payments to non-shareholder employees
  • Timing and manner of paying bonuses to key people
  • What comparable businesses pay for similar services
  • Compensation agreements
  • Use of a formula to determine compensation

You must be careful to pay yourself a reasonable salary. Paying yourself a salary that is too low (or none at all) can draw scrutiny from the IRS, as it is considered an attempt to avoid paying self-employment taxes.

The good news is that you do not have to figure it all out on your own! The Xendoo team is more than happy to help you determine your reasonable salary. Speak to one of our online accountants to learn more.

How Do I Pay My Taxes as an S-Corporation?

The first step is to elect to be taxed as an S-Corporation. To qualify for S-Corporation status, your business must meet the following requirements:

 

  • Your business must be incorporated in the United States.
  • Your business may only have certain types of shareholders, including individuals, and certain trusts and estates. They may not be partnerships, corporations, or non-resident alien shareholders.
  • Your business cannot have more than 100 shareholders.
  • Your business can only have one class of stock.
  • Your business cannot be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).

If your business meets all of this criteria, you can move forward by filing Form 2553, and sending it to the IRS. If your company has multiple shareholders, each of them must sign and submit this form as well. Once approved by the IRS, you will file your S-Corporation taxes using Form 1120S. 

To minimize error and maximize tax savings, partner with an online Tax CPA at Xendoo. We file your taxes for you so you can focus on growing your business. 

What are the Tax Advantages of Filing as an S-Corporation? 

No Double Taxation 

C-corporations are taxed twice, with the business paying corporate income taxes, and shareholders paying taxes on their share of the income. On the other hand, S-Corporations are not subject to corporate income tax. Instead, shareholders file a Schedule K-1 along with Form 1120S, which reports their share of the company’s profits or losses. This allows S-Corporations to avoid double taxation.

 

No Self-Employment Taxes (on Distributions)

Another key advantage of S-Corporations Election is that the distributions owners receive are not subject to self-employment taxes! 

Every small business must pay self-employment taxes to fund social security and medicare. If your business operates as an LLC, you are required to pay self-employment taxes on your entire share of the profit, regardless of how you use the money. On top of that, you will also be taxed at your personal income tax rate. As the owner of the S-Corporation, you only pay self-employment taxes on your reasonable salary. The distributions you take are exempt from self-employment tax! 

To illustrate, let’s revisit the example from earlier:

 

Your business makes $100,000 in profit. 

As a single-member LLC, you will pay $15,300 in self-employment taxes.

If you file the S-Corporation Election, you pay yourself a reasonable salary of $40,000. The remaining $60,000 is taken as a distribution from profit. You will pay $6,120 in self-employment taxes only on your salary. The remaining $60,000 is exempt, resulting in a tax savings of $9,180 compared to the LLC!

For quick reference, take a look at the chart below:

S-Corporation Election is a simple, yet effective, way to maximize your tax savings. Are you ready to take the next step? Schedule a free consultation with a Xendoo accountant today! 

Xendoo is Here for You

You are not alone as you navigate the waters of self-payment and tax filing. Xendoo Online Bookkeeping, Accounting, and Tax is here to help! We move at the speed of business, so you can make informed decisions faster – like deciding if an S-Corporation Election is right for your business!

Want to learn more about the different business entity types? Click here. 

Click here to access Form 2553.

Click here to access Form 1120S.

Click here to access the Schedule K-1.

An Amazon sellersets up her accounting reports on her computer

Questions to Ask When Looking for a CPA

An Amazon sellersets up her accounting reports on her computer

Running your own business can be tough. Between handling staffing issues, overseeing the procurement of essential resources, and planning your next marketing campaign, you might be stretched thin — not to mention all of that dreaded accounting work that you have to do to keep your books up to date!

Like many other business owners, you might have considered using professional CPA services. Partnering with a certified public accountant is a great way to avoid tax woes and maximize the profitability of your business. However, it is essential to select the right team for the job.

With this in mind, we’ve outlined 5 questions to ask when looking for a CPA. By using the information below, you can ensure that a CPA is the right fit for your accounting needs.

What Types of Businesses Do You Typically Work With?

When you’re inquiring about CPA services, this question should be at the top of your list. While the idea of working with an accountant who has decades of experience in finance may be appealing, it is vital to make sure that the professional you choose can fully understand the unique needs of your industry.

For instance, let’s say that your organization is in the eCommerce space. Perhaps you have narrowed your search for CPA services to two top candidates. One has 20 years of experience but has never worked with an eCommerce store before and the other only has five years of experience but has primarily served online retailers. 

In general, the less experienced CPA may be better suited to handle your accounting needs, due to their industry-specific experience.

Do You Have Experience with the IRS?

While discussing the types of clients that a CPA has worked with in the past, you should also inquire about their experience with the IRS. 

Tax laws are ever-changing, which means that you need CPA services that can keep up. If your prospective accountant lacks experience with the IRS, then you may want to continue your search.

Another option is to hire a CPA to oversee bookkeeping responsibilities and an EA (enrolled agent) to deal with tax concerns. However, this will require you to vet and hire two separate entities, which can quickly add up. 

The better solution? To partner with an accounting firm that offers both tax filing and CPA services. This will be more affordable and will also ensure that all of your company’s financial needs can be managed by a single entity.

How Frequently Do You Communicate?

Like any other partnership, it is important to establish clear expectations when seeking CPA services. Before deciding on an accountant, find out how frequently you will be able to communicate with them. 

Some accountants may only reach out monthly or quarterly. More involved partners will provide you with weekly or monthly reports and will contact you periodically throughout each quarter.

Make sure that you are satisfied with the frequency and depth of communication. The last thing you want is to hire an accountant to provide CPA services, only to find that you can’t get a hold of them when an issue arises.

Do You Rely on Third-Party Accountants?

If the firm that you partner with outsources work to third-party accountants, this will impact the frequency and quality of communication. We recommend asking upfront whether the accountant will be outsourcing work related to your business. 

While there is nothing wrong with outsourcing CPA services, it is important that the provider is transparent.

How Many Hours Will You Spend on My Business?

Asking this question can help you to determine two things. First, will the CPA provide your business with the attention that it deserves? Secondly, how much are those accounting services going to cost you? 

For now, we will only focus on that first component of this question.

Ideally, you want your accountant to spend about ten hours a month on your business, if not more. Of course, this will depend on several factors, such as the CPA services that you request and the complexity of your organization. 

If you only need tax return services, then this number will be much lower. Conversely, if you hire a CPA to perform tax return, accounting, and bookkeeping services, then they may spend hundreds of hours per year on your business.

CPA services are often designed to be scalable so that you can tailor them to the needs of your company. 

In the past, an accountant was viewed as a numbers cruncher. The expectation was that they would assess your books, run some numbers, and ensure that all financial records were accurate.

However, quality CPA services involve much more than just making a series of complex calculations. The best accountants will use numerical data to provide information about your company’s performance overall. They will also take the time to explain what the numbers mean so that you can make informed business decisions.

How Much Do You Charge?

So how much does an accountant cost anyway? The answer is “it depends.” When inquiring about the costs of CPA services, you should not only ask how much they charge but also what billing format that they use. 

There are three primary billing formats that are used by accountants, which are:

Hourly Rates

Traditionally, CPA services are billed by the hour. The more complex your books are, the longer the accountant will need to spend on them. As you might imagine, this can make it quite difficult to calculate the cumulative costs of accounting services. This problem is compounded by the fact that hourly rates vary greatly among bookkeepers and CPAs.

For example, the average rate for a bookkeeper ranges from $30 to $90 per hour. CPA services are much more costly, with hourly rates fluctuating between $150 and $450.

When discussing costs, ask what the firm charges per hour. If their rates are near the top of the spectrum and your books are way behind, expect to pay several thousand dollars for the first month of services alone.

Per Engagement Fees

Depending on your experience with bookkeeping and the complexity of your business, you may only need CPA services for large projects, such as your annual tax preparation. 

In these instances, accountants generally charge flat fees. These rates may fluctuate from a few hundred dollars for a simple tax return to as much as $5,000 for a comprehensive financial audit.

Monthly Flat Fees

Perhaps the best option for small businesses is a CPA service that charges flat monthly fees. These expenses are extremely easy to work into your budget and often cost far less than an accountant who charges by the hour.

Usually, accounting firms that offer flat monthly rates have several levels of service. These tiers are divided based on your company’s monthly expenses. For example, businesses that have $20K in monthly expenses will be charged less than an organization with $80K in monthly expenses.

What Accounting Software Do You Have Experience With?

Our final question can reveal a lot about your prospective accounting partner. We are not encouraging you to choose your CPA services provider based solely on what software they use. Instead, the goal here is to find out whether they are using the latest technologies to maintain your books or if they are relying on outdated manual processes that are more likely to introduce errors.

When answering this question, the CPA firm should be able to provide you with a very nuanced answer. They should confidently answer your question while also explaining why they use the technologies that they do. 

Take this a step further and ask them how these particular programs will benefit your business. The CPA should clearly outline how the software they use will add value to your organization.

You should also find out which online bookkeeping features their preferred programs include. Comprehensive CPA services should include online bookkeeping tools that are easy for you to use. These tools should also provide valuable insights into your company’s financial health.

Lastly, find out whether they offer a free demonstration or trial. While any accounting firm can talk up their CPA services, only a select few have the confidence to offer a trial period. 

Once you have had an opportunity to interact with the software, you will know if it is the right match for your company.

Accountant CPA Services from Xendoo

Even when you know what questions to ask, finding the right online CPA services for your growing business can be tough. Thanks to Xendoo, that is no longer the case!

Our firm offers a full suite of online CPA services for small businesses, including tax return processing, accounting and booking solutions, and much more. 

Concerned that your books are too far behind? Don’t worry, we can help with that, too! Xendoo’s “Catch Up” services are designed specifically for businesses that have fallen a few months (or a few years) behind.

Xendoo can handle all of your online CPA needs so that you can stop thinking about the past and start focusing on your future. We even provide a convenient free trial so that you can see our solutions in action. Contact us today to learn more! 

A woman stress bites a pencil going over her Florida business taxes

3 Tips for Catching Up Your Books

A woman sitting at her computer bites a pencil due to stress

Falling a little behind in your books is no big deal. After all, you can always catch up tomorrow, right? But how many “tomorrows” in a row does it take before you lose control over your incoming and outgoing expenses? 

Before long, your overdue books are hanging over your head like that project you forgot to complete in middle school.

If your hands are already sweaty from the mere thought of catching up on your books, you’re not alone. Nearly 25% of businesses are behind in their books. Thankfully, we can help. Today, we’ll offer you three tips for catching up on your books and getting you back in the game. 

Why You Need Current Books

Business owners wear many hats. “Bookkeeper” should never be one of them. Some owners handle their own accounting, thinking they can do it all. Others cut corners, trying to save expenses where they can. 

Nearly all of them live to regret this decision. Don’t be one of them! 

Here are some of the reasons why you need current books:

Tax Planning

Overdue books will cripple your business once tax season rolls around. If your books are not up-to-date by the time you file your taxes, you don’t just need to catch up books and data; you also run the risk of mistakes, audits, penalties, and late fees. 

Filing an extension might sound like a solution, but it can cause your problems to snowball, creating a bigger mess than you had before.

Long-Range Planning

Without current books, you’ll have no clear picture of the health of your business. Keeping your books up-to-date will help you understand your cash flow, which can help you to make strategic plans and grow your business in the future.

Business Loans

If you need a business loan, your lender may ask for a recent financial report showing your income and expenses. Staying current with your bookkeeping will allow you to provide this documentation and increase your chance of receiving these funds.

Step 1: Organize Key Documents

One of the best tips for catching up your books is to stay organized. You’ll want to verify that you have the appropriate documents to record your company’s income and expenses. 

If you’ve fallen a bit behind, you’ll want to organize your key financial documents, including:

Customer Invoices

How much money have you taken in? Your income will be reflected in your customer invoices. Organize them by date, and make a note of any outstanding invoices, if any. 

You’ll also need to pay attention to your company’s accounting method. In a cash basis business, the invoice is sent to the customer once they’ve paid. But for accrual accounting, you’ll record the income when the sale occurs, even when the customer doesn’t pay until a later date.

Debt Collections

Unfortunately, many businesses will have customers who don’t pay their invoices. For accrual accounting businesses, you may have to chase down your delinquent clients. 

Technically, you can deduct the cost of bad debt from your tax return, but first, you’ll have to demonstrate that you took reasonable steps to collect the money you’re owed. 

Besides, it’s better to collect these debts than to accept defeat at the hands of non-paying clients!

Business Expenses and Receipts

What are your expenses? If you’ve saved your receipts, it should be easy to calculate and record your business expenses. Make sure to separate business and personal expenses, especially since these will represent different deductible income for tax purposes.

Vendor Accounts

Make sure you have a copy of every bill you’ve received from your suppliers. These expenses will appear on your year-end statement, so it’s very important that you have copies of these documents. 

If you discover you’re missing a bill or invoice, contact the vendor, and they may be able to send you a copy. If you’ve missed any payments, make sure to take care of this as soon as possible so you can remain in good financial standing.

Employee Records

If your business has employees, you’ll need to complete the associated paperwork. This is important for them, but it’s also important for your business. If you paid a contractor more than $600 over the course of a year, you’ll need to send them a W9 and have them return it to you. 

A W9 form requests the contract employee’s information, which you’ll then use to send them a Form 1099. This reports how much you paid them during the year. 

Company employees will require W2s to show their yearly earnings. These documents will be important for tax planning, but the income your employees receive will also be recorded among your company’s expenses.

Step 2: Reconcile

After you’ve followed the above tips for catching up your books, you’ll need to reconcile your bank accounts and financial records. When reconciling, you’ll compare each transaction from your bank statement with the same transaction in your company’s accounting records. 

Each transaction should be the same. If not, you’ll need to fix these errors so that your bank statement matches your company’s books. 

In some cases, you’ll have to return to the previous step, since some errors may be the result of outstanding customer invoices or unpaid bills. Reconciling your books can therefore be a laborious process, but it can highlight discrepancies in your income and expenses to help improve the health of your business.

If this process sounds time-consuming, it’s because it is—especially if you’re behind in your books! You can farm this process out to a bookkeeper or a CPA, but they may charge for all of the time spent on this relatively menial task. 

For some owners, it may be worth this added expense, especially if you need to catch up your books as fast as possible. Others might reconcile their books beforehand to save the account time and money.

Step 3: Have a Bookkeeper Help You (or Hire a Tax Professional to Review)

Finally, you may want to have a bookkeeper help you. Financial professionals will understand these tips for catching up your books quite well and can perform some or all of the work for you. 

At the very least, a CPA or tax professional may be able to review your books, ensuring that your records are complete and up-to-date. They may be able to offer additional tips for catching up your books for tax planning purposes. 

Small business owners usually have their hands pretty full. In some cases, you’ll need help with the whole process just to bring your records up to date. Thankfully, many of today’s accounting firms offer what’s called “historic accounting” or “catch-up bookkeeping.”

Catch-up bookkeeping is a simple process by which a financial professional will review your documents and ensure that your books are current and accurate.

These services can go a long way toward improving efficiency and cutting costs. Rather than relying on a company bookkeeper or accounting staff, an online accounting firm can handle your books and offer catch-up services at a fraction of the cost of a regular employee.

Catch-Up Bookkeeping You Can Count On

We hope you’ve benefited from these tips for catching up your books. Need a hand? We’d love to help. Busy entrepreneurs have come to rely on Xendoo’s industry-leading catch-up bookkeeping for small businesses, bringing financial records up-to-date. 

We also believe the best solutions come with a good strategy. Without a clear plan, you could find yourself faced with the same problem in a few months. 

Xendoo offers a variety of accounting and bookkeeping solutions to streamline your accounting processes and improve the efficiency of your business as a whole. 

Create a free account today, and learn more about what Xendoo’s services can do for your business.