How to Prepare Your Business for Tax Time
Planning ahead is always a good business strategy, especially when it comes to taxes. Adopting a proactive strategy can help you stay ahead of business tax filing deadlines, avoiding the rush and the headache during tax season! To help business owners prepare their tax, we’ve prepared a business tax filing guide to walk you through the process. Deadlines Any good business tax filing guide should start with the various filing deadlines associated with taxes for businesses. For a detailed explanation of these dates, you can check out this helpful article from Karen Doyle. Here, we’ll summarize the need-to-know facts about various filing deadlines. Income Tax for Individuals, Sole Proprietors, and Single-Owner LLCs Individual taxpayers, sole proprietors, and single-owner LLCs must make estimated tax payments on a quarterly basis and file an annual income tax return. The filing deadline is April 15. Deadlines for state income tax can vary, so your state’s tax collection authority can be a helpful tax guide for local deadlines. 2024 Tax Filing Deadlines for Estimated Income Tax Businesses and self-employed individuals must submit quarterly estimated tax payments according to the following schedule: First Quarter: April 15 Second Quarter: June 17 Third Quarter: September 16 Fourth Quarter: January 15, 2025 Estimated payments can be calculated using Form 1120-W. Income Tax Returns for Partnerships and S Corporations S Corporations and partnerships must file a return by March 15, 2024. These organizations must generate a Schedule K-1 earnings statement for each partner or organization. The following forms will be needed to generate a Schedule K-1: Partnerships: Form 1065 S Corporations: 1120S You may file for a six-month extension by submitting Form 7004. You will also need to submit a deposit equal to the amount of tax owed. The return will be due on September 16, including any interest and penalties. Corporate Income Tax Returns Companies must submit a corporate income tax return by April 15, 2024. Corporations can request a six-month extension by filing Form 7004, though they will also be required to submit a deposit for their estimated taxes. If your business requests an extension, the new deadline will be October 15, 2024. This will also be the deadline for your first quarterly tax payment. If you do decide to request an extension, you’ll need to be prepared to pay your annual income tax from 2023, your quarterly tax payments, and any penalties or interest no later than October 15, 2024. Employment Tax Filings for Wages and Non-Employee Compensation Employers must distribute physical copies of tax forms by January 31 to any individual who received cash payments that include: Wages Non-employee compensation Dividends Royalties Profit-sharing distributions Electronic copies may be submitted instead, but only with the consent of the employee. Electronic copies must also be submitted to the Social Security Administration by the same date. The following documents are subject to the January 31 deadline: Forms 1097, 1098 and 1099 Forms 3921 and 3922 Forms W-2 and W-2G Small businesses must submit corresponding copies to the IRS by February 28. Keep in mind that you may also be required to submit the following forms: Form 1096, Annual Summary and Transmittal of U.S. Information Returns Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips You may be able to receive an extension for filing electronically, though this varies by year. 2024 Payroll Tax Deposit and Form 941 Due Dates Small businesses must file Form 941, Employer’s Quarterly Federal Tax Return, according to the following schedule: April 30 July 31 October 31 January 31 The following forms are due on the last business day of the first month after the end of each calendar year: Form 940, Employer’s Annual Federal Unemployment (FUTA) Return Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees Form 944, Employer’s Annual Federal Tax Return Form 945, Annual Return of Withheld Federal Income Tax In 2022, this deadline falls on Monday, January 31. Federal Excise Tax Requirements for Small Businesses Some industries are required to pay excise taxes. Retailers, manufacturers, travel services, and communication companies file Form 720, the Quarterly Federal Excise Tax Return, on the following dates: April 30 July 31 October 31 January 31, 2025 Form 11-C, Occupational Tax and Registration Return for Wagering is used for businesses that accept bets. This form must be submitted before accepting any bets. Form 730 must be submitted monthly. Form 2290 is used for businesses that rely on heavy highway vehicles. This form must be filed by the last day of the vehicle’s first month of use. After this, the excise tax period runs between July 1 and June 30. Tips What can you do to adopt a proactive strategy when it comes to your business tax filings? Our business tax filing guide offers three tips that can help you be prepared for next year’s tax season. Make Sure Your Books Are Caught Up Keeping your books up-to-date is one of the most important things you can do for your business. The further you get behind in your bookkeeping, the harder it will be to stay current with your financial and legal obligations — that can quickly make tax season a nightmare! Many small business owners cut corners by handling their own books, only to later discover that they’re in over their heads. Sound familiar? Don’t worry; you’re not the first. Outsourcing these needs to a professional bookkeeping service can help you get caught up while keeping your business running smoothly all year round. Gather Important Documents You’ll also want to establish an organizational system to gather and preserve your important financial documents. We’ve already mentioned some of these earlier on this business tax filing guide, but the most important documents include: W2s from employers 1099s from contractors or miscellaneous income Documents showing itemized expenses (medical, educational, child care, etc.) Statements regarding investments Statements regarding mortgage interest payments Receipts from charitable donations Receipts for deductible expenses These documents will be essential for calculating the federal income taxes that you owe. Plan Ahead
What happens if you get audited and don’t have receipts?
Most small businesses are unlikely to go through an IRS audit, but it’s possible. What happens if you get audited and don’t have receipts to back your expenses? It’s a common question and concern for many business owners. The best way to avoid headaches during an IRS audit is to keep accurate business records and bookkeeping year-round, including tracking receipts. Receipts are a paper trail for your business transactions and taxes. Without them, it’s harder to prove your tax deductions and other records are accurate. However, forgetting or misplacing receipts happens, especially when you’re busy running a business. The IRS regularly deals with missing receipts, so there are guidelines for what businesses can do if they don’t have receipts. xendoo’s bookkeepers and CPAs have years of experience managing business records. Below, learn everything you need to know about IRS audits and receipts. Table of contents Why do businesses need receipts? Receipts are records and proof of payment for the income and expenses your small business claims on tax returns. Without receipts, you may not be able to prove that a business transaction took place. Businesses should keep receipts for record-keeping, but also to claim tax deductions and credits. For example, if you’re traveling away from home for a business trip, you could deduct travel expenses, which would save you money on taxes. However, you’ll need to prove that the travel was for business purposes and keep receipts for items like: Receipts businesses should keep Receipts aren’t the only records businesses should keep; they help you track your income and expenses. Companies track a lot of receipts. Some examples of costs that you’ll need receipts for include: Since this isn’t an exhaustive list, it’s best to track all your business receipts and update your records regularly. To make the process simpler, many small business owners use business expense tracking and receipt apps. A bookkeeping service can also advise you on which records and receipts to track (and in some cases, do it for you). What happens if you get audited and don’t have receipts You have several options if you’re audited and don’t have receipts. Because the IRS regularly deals with missing receipts, there are standard steps businesses can follow. In most cases, you can track down receipts or provide other documents, which we’ll outline later, to prove an expense. The worst-case scenario is that the IRS may remove some business tax credits and deductions you claim. Audits aren’t as big a deal as movies and the media make them out to be, especially if you keep organized business records. There are many reasons the IRS might audit a business, but most happen due to random selection or tax errors. If the IRS audits you, you’ll receive a notification letter. From there, you’ll communicate with your auditor and provide the documents they ask for. The IRS doesn’t always share what triggered an audit, but these are some red flags: Although tax professionals and CPAs are familiar with tax laws and can help you navigate an audit, they focus on avoiding audits first. Business tax services prepare and file taxes for you, so they’ll catch inaccuracies and mistakes before you send tax returns to the IRS. What to do when you don’t have receipts If you don’t have receipts and you’re worried about an IRS audit, you have two options. If you don’t do either of the above options, you’ll likely take the loss of deductions or credits. Depending on your situation, you may need to pay IRS fees. Let’s look at the steps you can take when you don’t have receipts. 1. The Cohan rule Missing receipts are so common that since the 1930s, a legal rule has outlined options for taxpayers who don’t have them. It’s called the Cohan rule, and in some cases, you can use it to claim deductions if you’re missing receipts. In a nutshell, the Cohan rule says that: The Cohan rule has helped many small business owners prove their expenses when missing receipts. However, the IRS can reject your deductions even if you follow the Cohan rule. For example, you can’t claim the Cohan rule if your deductions include certain expenses like entertainment. You’ll also need to explain and document the: 2. See if vendors will provide invoices and receipts To provide the IRS with documentation, you can reach out to vendors to request duplicate receipts. Since most vendors use online invoicing and billing systems, they’ll have copies of your records. Keep in mind that some vendors might charge a fee for their time to retrieve past invoices, receipts, and other statements. 3. Find checks, credit card, or bank account statements If you’re unsure where you made a purchase or can’t contact them to provide copies, search through old checks and bank and credit card statements. Going through these documents can tell you: You can use this information to reach out to vendors and ask them for receipts or use it to prove your expense is legitimate. Getting copies of the receipts is ideal though, since it will show exactly what you spent money on to count as a tax-deductible expense. 4. Review your calendar and emails Reviewing your calendar and email will help you narrow your search for receipts. When you make a purchase, companies often send payment confirmation and a copy of your receipt to your email. If you know the company’s name, purchase date, or other details, you may find it by quickly searching your inbox. If you don’t, looking through your calendar could reveal where you were on certain days. It’s especially helpful to find when you travel for business so you can claim those travel expenses. Although this method helps you find transaction details, the IRS doesn’t accept calendars or emails as proof of business expenses. 5. Look at location data and maps on your phone A similar method for searching for transaction details is to use location data on your phone. Your phone stores a lot of information
Filing Your Schedule C: A Simple Guide
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. 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,
Do You Need to File Personal and Business Taxes Separately?
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
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.