Tag Archive for: tax prep

Stay Ahead of the Curve: What the BOI Report and Corporate Transparency Act Means for Small Business Owners

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Why the BOI Report Matters

As a small business owner, staying compliant with regulations is important to your company’s health. Beyond compliance, understanding the Beneficial Ownership Information (BOI) Report can provide critical insights into your business environment. The BOI Report, mandated by the Corporate Transparency Act (CTA), is designed to increase transparency in business ownership and fight financial crimes. If you’re unaware of this new filing requirement, you could face costly fines—and miss out on valuable insights that can shape your business strategy.

Let’s break down the BOI Report, why it matters, and how it can impact your small business.

The Corporate Transparency Act (CTA) and What It Means for Your Business

The Corporate Transparency Act (CTA) is the legislation that brought the BOI filing requirements into effect. Its primary goal? Combating fraud, money laundering, and other illicit activities by requiring businesses to disclose their beneficial ownership information. If you own a small business, this likely applies to you.

Who Needs to File? Most businesses, including corporations and LLCs, must file under the Corporate Transparency Act (CTA). If your company has fewer than 20 full-time employees, you are likely required to file. However, certain entities, such as publicly traded companies and large operating companies with more than 20 full-time employees and over $5 million in revenue, are exempt.

For small business owners, it’s crucial to check if your company meets the filing requirements to avoid potential fines and penalties.

Exceptions:

Certain entities are exempt from the filing requirements under the CTA. These include:

  • Sole Proprietorships: Sole proprietorships only need to file a BOI report if they have formed a corporation, LLC, or other formal legal structure that requires filing.
  • 501(c)(3) Non-Profit Organizations: Non-profit organizations that are classified under 501(c)(3) of the Internal Revenue Code are exempt from filing a BOI report. These organizations are already subject to other forms of transparency and oversight.
  • Publicly Traded Companies: Since they already report ownership details to the Securities and Exchange Commission (SEC), they are not required to file a BOI report.
  • Large Operating Companies: Any company with over 20 full-time U.S. employees, over $5 million in gross annual revenue, and a physical presence in the U.S. is exempt.
  • Certain Regulated Entities: Banks, credit unions, insurance companies, and other entities already subject to federal oversight and reporting are typically exempt.

What Are the Deadlines? Filing deadlines are strict, and missing them can lead to penalties. Ensure you know when your business is required to submit its BOI information. Stay on top of updates to ensure compliance. 

The filing deadline for the BOI Report under the Corporate Transparency Act (CTA) is January 1, 2025. All reporting entities, including small businesses like LLCs and corporations, must submit their Beneficial Ownership Information (BOI) by this date to remain compliant.

For businesses created after January 1, 2024, the deadline to file their BOI report is within 30 days of their formation or registration.

Meeting these deadlines is crucial to avoid penalties, including fines of up to $500 per day for non-compliance. Review your business’s information and file on time to avoid any issues!

How to File Your BOI Report: A Step-by-Step Guide

Filing your Beneficial Ownership Information (BOI) Report under the Corporate Transparency Act (CTA) is a straightforward process, but it’s essential to follow the steps carefully to ensure compliance. Visit the Financial Crimes Enforcement Network (FinCEN) website to submit your report online. Make sure you have accurate information about your beneficial owners ready before filing.

Need help? Consult a Professional

If you’re unsure about any part of the process, it’s best to consult with a professional such as an accountant or legal advisor. Services like xendoo can help you stay organized and ensure your business remains compliant.

New Penalties for Non-Compliance: Don’t Risk Hefty Fines

Filing your BOI report isn’t just a formality—it’s a legal requirement. Businesses that fail to file or provide inaccurate information could face severe penalties:

  • Civil Penalties: $500 per day for each day your business is non-compliant.
  • Criminal Penalties: For willfully providing false information, you can face up to $10,000 in fines or imprisonment for up to two years.

These penalties can hurt your bottom line and your company’s reputation. Staying compliant is not just about avoiding fines—it’s about protecting your business and maintaining operational stability.

Action Step: Consult your bookkeeper or accountant to ensure your filings are accurate and timely.

Stay Compliant and In The Know: Key Insights from the Latest BOI Report

Beyond compliance, the BOI Report provides essential insights into economic and business trends. These insights can help you steer your company in the right direction. Here are some key areas to focus on:

  • Economic Trends Impacting Small Businesses: From inflation to shifts in consumer behavior, the BOI Report highlights trends that could affect your strategy. For example, supply chain disruptions might signal a need to diversify suppliers or streamline operations.
  • Growth Opportunities: Certain sectors are experiencing rapid growth. For instance, e-commerce and healthcare have seen significant expansion. Use this data to explore new markets and make informed decisions about where to invest.
  • Risks to Watch Out For The report identifies potential risks, such as regulatory changes or economic downturns. Being proactive in addressing these risks can protect your business from unexpected challenges.

How to Use the BOI Report to Make Smarter Business Decisions

You can leverage the BOI Report to improve several aspects of your business. Here’s how:

  • Financial Planning: Use the report’s data to refine your cash flow management and adjust your financial forecasts. Understanding broader economic trends can help you make more informed pricing, spending, and investment decisions.
  • Business Development: The BOI Report offers insights to guide customer acquisition strategies. For example, if a particular sector is experiencing growth, you can focus your marketing efforts there.

Preparing for the Next Filing Deadline

Now that you understand the significance of the BOI Report and the CTA, it’s time to prepare for the next filing deadline. Here’s what you should do:

  • What to Do Next: Review your current filing processes. Ensure your BOI information is up-to-date and you’re meeting all requirements under the CTA.
  • Tools & Resources: Stay organized using bookkeeping and account services like xendoo, which can help you streamline your financial operations and ensure compliance with the Corporate Transparency Act. Other helpful tools include QuickBooks and Xero for managing your financial records, ADP for tracking legal compliance and payroll filings, and Dropbox or Google Drive for organizing essential documents and ownership information. Small business owners often struggle with the administrative burden of filing reports, so outsourcing to trusted professionals or using these tools can save you time and reduce stress.

Empower Your Business with BOI Report and CTA Compliance

By staying compliant with the Corporate Transparency Act, you’re not only avoiding fines but positioning your company to thrive in a competitive market.

Key Takeaways for Small Business Owners:

  • New Filing Requirements: Don’t ignore the deadlines—failing to file can cost you financially.
  • Economic Trends: Use the BOI Report’s insights to refine your strategy.
  • Growth Opportunities: Identify sectors where your business can expand.
  • Risk Management: Be proactive in addressing regulatory changes and market risks.

Stay informed. Stay compliant. And use the data at your fingertips to make your small business stronger. 

Need help filing? Let us take this off your plate. Contact our tax experts for more information on filing. 

Why Your Business Needs xendoo

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Managing business finances can be challenging, especially when traditional accounting solutions force you into rigid systems and long-term commitments.  In today’s world, flexibility and adaptability are crucial for small business owners.

Small business owners often struggle with inaccurate bookkeeping, messy tax preparation, or worse—financial mismanagement that can cost them thousands. The reality is poor financial management can make or break your business. Choosing a solution that empowers your business rather than limits it is important as you work to improve your financial operations. This allows you to stay in control and focus on what really matters—your success.

The right accounting service should offer flexible, responsive bookkeeping solutions designed to fit your business’s unique needs. There are no rigid systems. No long-term commitments. Just efficient, reliable support that helps you stay in control of your finances, allowing you to focus on what matters—growing your business.

Don’t Get Locked into Proprietary Systems

Some online accounting firms, like Bench, require you to switch to their proprietary software—forcing you into a rigid, closed system. When it’s time to scale or switch, you’re left with clunky Excel sheets, making it a nightmare for any future accountant. That’s a financial risk you can’t afford.

xendoo’s Solution: xendoo integrates seamlessly with industry-standard tools like QuickBooks and Xero. Your financial data is not trapped— making transitions smooth and painless. Whether growing or shifting focus, xendoo allows you to remain flexible while keeping your finances organized.

Always Available and Responsive

Let’s be real—communication is key, especially when your business’s finances are on the line. Many competitors outsource their bookkeeping to remote accountants, leaving you chasing down responses when you have pressing questions. That can lead to delays, mistakes, and mounting frustrations.

xendoo’s Solution: xendoo’s team of U.S.-based accountants work together in a local office, ensuring fast, consistent communication. Whether you prefer email, phone calls, or video meetings, we’re always available and responsive to your needs. You’ll never be left in the dark or feel like just another number. We prioritize you—and that means timely, proactive answers every time.

The xendoo Difference

  • Scalability without limits: Many services lock you into proprietary software systems that don’t grow with your business. With xendoo’s use of industry-standard tools, you can scale, switch, or adjust as your business evolves.
  • Superior Customer Service: While competitors often outsource services to global teams, xendoo keeps everything U.S.-based. This means no miscommunication or waiting for answers from accountants across time zones.
  • Pricing Flexibility: Unlike many competitors who offer rigid, high-priced plans, xendoo offers plans depending on your business needs, meaning you’re in control of how you manage your expenses.

Having a reliable, flexible, and responsive accounting partner can make all the difference when managing your business finances. xendoo goes beyond just crunching numbers—our goal is to provide seamless, transparent bookkeeping services that adapt to your needs without locking you into rigid systems or long-term commitments. With our U.S.-based team, industry-leading software integrations, and a commitment to fast, personalized communication, xendoo stands out as the smarter choice for small business owners who want efficiency, control, and peace of mind in their financial operations.

Ready to see the xendoo difference? Schedule your FREE consultation today. Our team of dedicated accountants is ready to help your business succeed.

Cybersecurity 101 for Small Businesses: Essential Tips to Protect Your Data

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Cybersecurity 101 for Small Businesses: Essential Tips to Protect Your Data

In today’s digital age, even the smallest businesses are vulnerable to cyberattacks. Cybercriminals always seek opportunities to exploit weaknesses, whether it’s customer information, payment details, or sensitive business data. For small business owners, understanding cybersecurity basics can be the difference between safeguarding your company and suffering a costly breach. This guide will walk you through essential cybersecurity practices to protect your data and secure your business.

1. Strengthen Your Passwords

Weak passwords are one of the easiest ways for hackers to access your systems. Here’s how to ensure your passwords provide a strong defense:

  • Use Long, Complex Passwords: Passwords should be at least 12 characters long and include a mix of uppercase and lowercase letters, numbers, and special symbols. Avoid using easily guessed words like your business name or “password123.”
  • Create Unique Passwords for Every Account: Never use the same password across multiple platforms. Hackers could use the same password to access other accounts if one system is compromised. A password is only as strong as the weakest site on which it was used.
  • Use a Password Manager: A password manager generates strong passwords and stores them securely, eliminating the need to remember multiple complex passwords. Lastpass and 1password also store the Secret key to generate the Multi-Factor Authentication (MFA) code automatically.

2. Enable Two-Factor Authentication (2FA)

Two-factor authentication (2FA) provides an additional layer of security by requiring a password and a second form of identification, like a code sent to your phone. Even if a hacker manages to steal your password, they won’t be able to access your account without this secondary verification.

How to Implement 2FA:

  • Check for 2FA Availability: Most significant platforms like Google, Microsoft, and social media accounts offer 2FA. Turn it on for your email, accounting software, and any platform where sensitive information is stored.
  • Choose Secure Methods: Opt for authentication apps (e.g., Google Authenticator) over SMS codes, as SIM-swapping attacks can compromise text message-based 2FA.

3. Regularly Update Software

Cybercriminals often exploit vulnerabilities in outdated software. Manufacturers frequently release updates that patch these security holes, so keeping your software current is critical.

  • Enable Automatic Updates: For operating systems, antivirus software, and key business tools, turn on automatic updates to ensure you’re always running the latest version.
  • Schedule Regular Software Audits: Periodically review all the software used in your business. Make sure everything is up to date and remove any unnecessary or unused applications that could become security risks.

4. Secure Your Wi-Fi Network

A compromised Wi-Fi network can expose your business data to unauthorized users. Here’s how to secure it:

  • Use Strong Encryption: Ensure your Wi-Fi network is encrypted with WPA3, the latest and most secure protocol.
  • Create a Separate Guest Network: If you offer Wi-Fi to visitors or customers, set up a separate guest network. Keep your business network isolated from public access.
  • Change Default Router Settings: Change your router’s default password and username. Default credentials are often published online, making it easy for hackers to gain control of your network.

5. Backup Your Data

Data loss due to a cyberattack, hardware failure, or human error can devastate a small business. Regular data backups are your safety net.

  • Follow the 3-2-1 Rule: Keep three copies of your data: two stored locally (but on different devices) and one stored off-site (either in the cloud or a physical location).
  • Automate Backups: Set up automatic backups to ensure your data is consistently saved without manually intervening.
  • Test Your Backups: Regularly test backup files to confirm they work and that you can restore your system quickly in case of a data loss incident.

6. Educate Your Employees

Your employees are on the front lines of cybersecurity. Without proper training, even the best security systems can fail.

  • Phishing Awareness: Phishing attacks—fraudulent emails that trick recipients into revealing sensitive information—are among the most common cyber threats. Educate your employees on recognizing phishing attempts and what to do when they encounter one.
  • Security Protocols: Establish clear cybersecurity protocols, such as reporting suspicious emails, locking devices when not in use, and avoiding unsecured public Wi-Fi.
  • Regular Training Sessions: Cybersecurity threats evolve, so training should be continuous. Schedule regular refresher courses and update your team on the latest best practices.

7. Carry Out Risk Assessments

A risk assessment helps you identify potential vulnerabilities in your business, allowing you to address them before they become problems. Regularly assessing your risks will keep your security measures effective as your business grows.

  • Identify Key Assets: Start by pinpointing your business’s most critical data and systems. This includes customer information, financial records, and intellectual property.
  • Analyze Potential Threats: Evaluate what threats could affect your business, such as phishing attacks, ransomware, or insider threats.
  • Implement Mitigation Strategies: Based on your findings, enhance your security where needed. This might mean upgrading software, adjusting user permissions, or increasing staff training.

8. Install Antivirus Software

Antivirus software is a fundamental part of any cybersecurity strategy, helping to detect, block, and remove malware before it can compromise your system.

  • Choose Comprehensive Software: Look for antivirus programs offering more than basic protection. Features like real-time scanning, malware removal, and email filtering can provide an extra layer of defense.
  • Keep Your Antivirus Updated: New malware threats emerge every day, so ensure your antivirus software is always updated with the latest virus definitions and patches.
  • Schedule Regular Scans: Set your antivirus software to run regular system scans, preferably during non-business hours, to catch any potential threats early.

9. Use a Firewall

A firewall acts as a barrier between your internal network and the outside world, monitoring incoming and outgoing traffic for suspicious activity.

  • Install a Business-Grade Firewall: Many small businesses rely on built-in firewalls from their internet providers, but a dedicated business-grade firewall can offer more robust protection.
  • Regularly Update Your Firewall Settings: Just like antivirus software, firewalls need regular updates to remain effective against new threats.
  • Monitor Firewall Logs: Firewalls keep detailed logs of all network activity. Regularly review these logs to spot any unusual activity that could signal a security issue.

 

Cybersecurity is a continuous journey that evolves with your business. As your company grows and embraces new technologies, enhancing your security measures ensures you stay ahead of potential threats. By taking these proactive steps today, you’ll protect your business and create a solid foundation for future growth—allowing you to focus on what truly matters: building your success.

Protect Your Financial Data with xendoo

At xendoo, we understand that safeguarding your financial information is just as important as protecting your business from cyber threats. Our platform is built with cutting-edge security protocols, including data encryption, secure cloud storage, and strict access controls, ensuring that your sensitive financial data is always protected.

With xendoo, you get expert bookkeeping and tax services and the peace of mind that your financials are safe and secure.

Ready to secure your business’s financial health? Schedule a free consultation with xendoo today and experience hassle-free, secure financial management.

 

Leveraging Data to Make Informed Business Decisions: A Complete Guide for Small Business Owners

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Data-driven decision-making is crucial for small businesses looking to grow and streamline operations. By leveraging data for small business growth, you can transform how you manage customer trends, sales, and finances. This guide will show you how to leverage data to grow your business, streamline operations, and stay ahead of the competition.

The Key Types of Data Every Small Business Should Track

To make informed business decisions, it’s crucial to understand the kinds of data you can collect and how each can impact your business. Here are the key types you should focus on:

  • Customer Data: Understanding your customers is the cornerstone of growing your business. By tracking demographics, purchase history, and website behavior, you can offer personalized experiences and address common pain points. For example, analyzing customer behavior on your website might reveal visitors abandoning their carts at the checkout—helping you identify areas for improvement.
  • Sales Data: Sales data reveals what products or services are selling, when sales are peaking, and customer buying patterns. This data lets you plan your inventory, predict demand, and create targeted promotions. For instance, seasonal spikes in sales can guide your marketing efforts and help you prepare inventory for high-demand periods.
  • Financial Data: Your financial data is the heartbeat of your business. It includes revenue, expenses, profit margins, and cash flow. Reviewing financial reports regularly helps you pinpoint areas where you can cut costs or invest more strategically. Tools like QuickBooks or Xero make tracking this data in real time easy.
  • Operational Data: Includes inventory levels, supply chain metrics, employee performance, and process efficiency. For instance, monitoring inventory data can help you optimize stock levels and reduce the risk of stockouts or overstocking.
  • Marketing Data: Encompasses metrics like website traffic, social media engagement, email open rates, and conversion rates. Analyzing marketing data can help you refine your strategies, such as adjusting your ad spending based on which campaigns generate the highest return on investment.

How Data Can Help You Make Smarter Business Decisions

Data is more than just numbers; it’s a critical asset that can unlock valuable insights about your business. From understanding customer behavior to optimizing inventory, data reveals patterns and trends that might otherwise go unnoticed. Here’s how effectively using data can benefit small business owners:

  • Identify Opportunities: Spot emerging market trends, understand customer needs, and pinpoint areas for improvement. For instance, analyzing sales data on platforms like Google Analytics or Shopify Analytics might reveal an increasing demand for eco-friendly products, prompting you to expand your offerings.
  • Reduce Costs: Streamline operations, cut unnecessary expenses, and make smarter investments. Platforms like QuickBooks or Xero can help you track operational data, revealing inefficiencies such as delays in specific processes. With this insight, you can lower costs and improve productivity.
  • Enhance Customer Experience by Personalizing interactions, anticipating customer needs, and building loyalty. Tools like HubSpot or Salesforce allow you to analyze customer feedback and behavior data, helping you better tailor your services to meet customers’ expectations. For example, you can offer personalized product recommendations based on past purchases.
  • Improve Decision-Making: Base your strategic choices on solid evidence rather than assumptions. Up-to-date financial data from outsourced bookkeeping experts like xendoo or Zoho Books can help you make more accurate forecasts and budgets more effectively, reducing uncertainty in your planning. These insights allow you to steer your business confidently in the right direction.

Steps to Start Using Data for Informed Decision-Making

  • Step 1: Set Clear Objectives
    Define your data goals. Clear objectives will guide your data collection and analysis, whether you’re boosting sales, improving customer retention, or optimizing marketing strategies.
    Example: To improve customer retention, analyze data related to repeat purchase rates, customer satisfaction scores, and feedback from loyalty programs.
  • Step 2: Collect the Right Data
    Identify the data you need based on your objectives. Use tools such as CRM software, accounting platforms, point-of-sale systems, and Google Analytics to automate data collection and help organize it for analysis.
    For example, a retail store might use point-of-sale data to track sales trends and customer preferences. In contrast, an e-commerce business might use Google Analytics to understand online shopping behavior.
  • Step 3: Clean and Organize Your Data
    Ensure your data is accurate and consistent by removing duplicates, correcting errors, and standardizing formats. Clean data is essential for reliable analysis and decision-making.
    Example: If you consolidate sales data from different sources, ensure the data is formatted consistently to compare performance across channels accurately.
  • Step 4: Analyze the Data
    Look for trends, patterns, and insights that align with your goals. Use visualization tools like Tableau or Excel to create charts and graphs that simplify interpretation.
    Descriptive Analytics: Understand past performance. For example, analyze monthly sales trends to identify peak seasons and adjust inventory levels accordingly.
    Predictive Analytics: This technique uses historical data to forecast future outcomes. For instance, it analyzes past customer behavior to predict future buying patterns and adjust marketing strategies.
    Prescriptive Analytics: Based on analysis, recommend actions. If data shows that a particular marketing campaign drives high conversions, allocate more budget to that campaign.
    Example: A café owner notices a spike in iced coffee sales in the afternoon. They could run a targeted promotion during these hours to boost sales further.
  • Step 5: Make Data-Driven Decisions
    Base your decisions on the insights gained from your data analysis. Data-driven choices reduce risk and improve outcomes.
    Example: If sales data reveals a product is underperforming, you might consider discontinuing it or running a promotional campaign to clear inventory.
  • Step 6: Monitor and Adjust
    Business environments change, and so will your data. Keep monitoring and adjusting your strategies based on new data to stay on the path to success.
    Example: After revising pricing based on competitor analysis, monitor sales and customer feedback to ensure the changes benefit your customer base without alienating them.

Real-World Examples of Leveraging Data in Small Business

  • Retail Shop: Inventory Management Optimization
    A small boutique analyzed sales data to identify which clothing items were frequently out of stock and which were rarely sold. Based on this analysis, they adjusted their inventory orders, reducing overstock issues and keeping high-demand items in stock. This approach increased sales and improved customer satisfaction.
  • Restaurant: Enhancing Customer Experience
    A local restaurant used customer feedback data from surveys and online reviews to pinpoint long wait times during peak hours. Based on this feedback, they adjusted staffing schedules and optimized kitchen workflows, reducing wait times, higher customer satisfaction scores, and more repeat visits.
  • E-commerce Business: Personalizing Marketing Campaigns
    An online jewelry store segmented its email list using customer data to target frequent buyers with personalized product recommendations. This approach increased email open rates by 30% and boosted sales conversions.

Common Pitfalls to Avoid When Using  Data

  • Ignoring Data Quality: Ensure your data is accurate, complete, and up-to-date. Low-quality data can lead to misguided decisions.
  • Focusing on Vanity Metrics: Concentrate on metrics that directly impact your business goals, such as conversion rates and customer acquisition costs, rather than metrics that look good but offer little actionable insight.
  • Overcomplicating Analysis: Simple metrics can often provide the insights you need. Avoid overcomplicating your analysis with unnecessary details.

 

Leveraging data isn’t just for big companies. With the right approach, small business owners can use data to make informed decisions that drive growth, improve customer satisfaction, and streamline operations. Start by tracking the most relevant metrics, and you’ll soon see the benefits of data-driven decision-making in your business.

Want to improve your data analysis? xendoo can help by providing real-time financial insights and expert advice tailored to your unique business needs. Contact us today for a FREE 15-minute consultation!

 

5 Bookkeeping Tips for Small Businesses

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Financial forecasting is a vital aspect of running a successful small business. It involves predicting future financial performance based on historical data, current trends, and strategic plans. Effective forecasting relies on accurate bookkeeping and thoughtful analysis. Implementing these top five bookkeeping tips will help you enhance your financial forecasting, make informed decisions, and drive your business forward.

1. Maintain Accurate Financial Records

Why It Matters: Accurate financial records are the bedrock of reliable forecasting. If your records are complete and correct, your forecasts will be correct, eliminating the potential of misguided strategies and missed opportunities.

Tip: Invest in advanced bookkeeping software to keep your financial records precise and current. Tools like QuickBooks, Xero, and FreshBooks offer features that automate data entry, track expenses and income, and generate real-time financial reports. Regularly reconcile your bank statements with your records to ensure consistency and accuracy. This practice helps you avoid discrepancies and provides a solid foundation for forecasting.

2. Develop a Detailed Budget

Why It Matters: A well-constructed budget acts as a financial blueprint for your business. It helps you set realistic revenue targets, allocate resources effectively, and anticipate future expenses, all of which are crucial for accurate forecasting.

Tip: Start by outlining your fixed costs (such as rent, salaries, and insurance) and variable costs (such as utilities, marketing, and materials). Use historical data to project future revenue and account for seasonal variations and market trends. Incorporate a buffer for unexpected expenses. Regularly review and adjust your budget to reflect changes in your business operations, economic conditions, and industry trends.

3. Implement Cash Flow Projections

Why It Matters: Cash flow projections are essential for ensuring your business has sufficient liquidity to cover its operational needs. Without accurate projections, you might face cash shortfalls, impacting your ability to pay bills, invest in growth, or respond to unforeseen challenges.

Tip: Create detailed cash flow forecasts by analyzing past cash flows and considering future income and expenditures—factor in upcoming expenses, expected revenue, and any planned capital investments. Use forecasting tools and software to automate this process and generate periodic reports. Regularly update your projections based on actual performance and changes in your business environment. This proactive approach helps you manage cash flow effectively and avoid liquidity issues.

4. Analyze Financial Statements Regularly

Why It Matters: Financial statements, including income statements, balance sheets, and cash flow statements, provide critical insights into your business’s financial health. Regularly analyzing these documents helps you identify trends, spot potential issues, and make data-driven decisions.

Tip: Schedule monthly or quarterly reviews of your financial statements to stay informed about your business’s performance. Focus on key financial metrics such as profit margins, operating expenses, and revenue growth. Use this information to adjust your financial forecasts and strategies. Consider working with a financial advisor or accountant to help interpret your statements and provide expert guidance on strategic decisions.

5. Leverage Historical Data for Forecasting

Why It Matters: Historical financial data is a valuable reference point for forecasting. Analyzing past performance helps you understand trends, set realistic goals, and predict future financial outcomes more accurately.

Tip: Gather and analyze historical data on sales, expenses, cash flow, and other financial metrics. Identify patterns and correlations that can inform your forecasting assumptions. For example, if you observe seasonal sales spikes, incorporate these patterns into your future projections. Additionally, use industry benchmarks and market research to enhance the accuracy of your forecasts and align them with broader market trends.

Effective financial forecasting is a key component of successful business management. By maintaining accurate records, developing a detailed budget, implementing cash flow projections, analyzing financial statements, and leveraging historical data, you can create reliable forecasts that support strategic decision-making and drive your business’s success.

 

At xendoo, we are committed to helping small businesses master their financial management and forecasting. Our expert bookkeeping services and personalized support are designed to provide you with the insights and tools you need to thrive. Contact us today to discover how we can assist you in optimizing your financial practices and achieving your business goals. 

For more expert tips to avoid costly catch-up bookkeeping mistakes click here!

7 Tax-Saving Hacks Every Business Owner Needs

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Maximizing tax savings is essential for any business aiming to optimize its financial health. By strategically leveraging tax-saving opportunities, you can reduce your taxable income, improve your cash flow, and allow you to reinvest in your business. Here are seven effective ways to enhance your tax savings:

1. Change Your Business Structure

Changing your business to an S Corporation (S Corp) can significantly maximize your tax savings by offering a more efficient tax structure. Different from a C Corporation, where profits are taxed at both the corporate level and again as dividends to shareholders, an S Corp allows income and losses to pass through directly to shareholders’ personal tax returns. This structure avoids the double taxation issue and can lower your overall tax burden. Additionally, S Corp shareholders can receive a portion of their income as distributions, which are not subject to self-employment taxes, potentially reducing Social Security and Medicare tax liabilities. By leveraging deductions for business expenses and retirement plan contributions, along with strategically distributing income, an S Corp can provide considerable tax benefits and financial flexibility.

2. Invest in Your Business Using Section 179

Section 179 offers a great way to boost your business’s tax savings by letting you deduct the full cost of qualifying equipment and software in the year you buy or lease it. Instead of spreading the deduction over several years, you can take the entire amount off your taxable income right away. For example, if you purchase $50,000 worth of new machinery or software, you can deduct the full $50,000 this year, rather than over a longer period. Additionally, if you lease equipment, the lease payments can also be deducted under Section 179, making it easier to manage cash flow while still reaping the tax benefits. This approach not only reduces your taxable income but also frees up cash for other investments or business needs.

3. Prepay Now Your Expenses Now, Save Later

By prepaying certain expenses before the end of the year, you can deduct these costs in the current tax year, which reduces your taxable income for that year. For instance, if you prepay your rent for January and February before the year ends, you can claim those rent payments as deductions for the current year, lowering your tax liability. Similarly, Prepaying for services like advertising or insurance can also help you save on taxes. By paying for these expenses before the end of the year, you can claim them as deductions right away. This means you can reduce your taxable income for the current year, which lowers your tax bill. It also helps improve your cash flow and makes it easier to plan your finances. This simple strategy not only cuts your current tax expenses but also gives you better control over your financial planning.

4. Write Off Bad Inventory 

 According to IRS guidelines, businesses can deduct the cost of inventory that is obsolete, damaged, or otherwise unsellable. For example, if you run a print manufacturing company and have old paper and supplies that are no longer useful, you can write off these items as a loss. If you donate them to a local school or nonprofit, you can often claim a charitable contribution deduction as well, potentially increasing your tax savings. Similarly, if you sell sneakers and have old models that aren’t selling, you can write off the cost of these unsold items and donate them. By writing off bad inventory, you reduce your taxable income, which lowers your overall tax liability, and also provide valuable contributions to your community. Just ensure that all inventory write-offs and donations are properly documented and comply with IRS regulations.

5. Rent Your Home to Your Business for Meetings

 Renting your house for company meetings can be a smart way to maximize your business’s tax savings. According to IRS guidelines, you can rent your home to your business for up to 14 days a year without having to report the rental income, as long as the rental arrangement is at fair market value and used for business purposes. This rental income remains tax-free, and your business can deduct the rental expense as a business cost. For instance, if you charge your business a fair market rate for using your home for meetings or events, your business can deduct this cost, reducing your overall taxable income. This approach not only provides a way to earn additional income without paying taxes on it but also helps cut down your business’s tax liability. Just make sure the rental arrangement is at fair market value and properly documented to stay compliant with IRS regulations.

6. Fund a Retirement Plan

Funding a retirement plan is a great way to save on taxes for your business. Contributions to retirement plans, like a simple / solo 401(k) or SEP IRA, are tax-deductible, which means they reduce your taxable income for the year. For example, if your business puts $20,000 into a SEP IRA, that amount is deducted from your taxable income, lowering your tax bill. This not only cuts your current taxes but also helps you save for the future. Additionally, having a retirement plan can improve employee satisfaction and attract talented workers. Overall, funding a retirement plan offers immediate tax benefits and supports long-term financial security for both you and your employees.

7. Hire a Tax Advisor 

Bringing a tax advisor on board can significantly enhance your business’s ability to maximize tax savings. Tax advisors are experts in navigating complex tax laws and can identify opportunities to reduce your tax liability that you might overlook. They can help with strategic planning, ensure compliance with current regulations, and provide advice on deductions, credits, and other tax-saving strategies tailored to your business. With their guidance, you can optimize your tax position and avoid costly mistakes.

 At xendoo, our team of expert tax advisors is here to help you maximize your tax savings. Plus, our comprehensive accounting and bookkeeping services ensure your financial records are meticulously managed, giving you the clarity and accuracy needed to make informed decisions and optimize your tax strategy. Schedule a free consultation to ensure you’re taking full advantage of every tax-saving opportunity available to your business. 

 

How to Prepare Your Business for Tax Time

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

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

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

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

Deadlines

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

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

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

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

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

2024 Tax Filing Deadlines for Estimated Income Tax

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

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

Estimated payments can be calculated using Form 1120-W.

Income Tax Returns for Partnerships and S Corporations

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

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

  • Partnerships: Form 1065
  • S Corporations: 1120S

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

Corporate Income Tax Returns

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

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

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

Employment Tax Filings for Wages and Non-Employee Compensation

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

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

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

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

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

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

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

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

2024 Payroll Tax Deposit and Form 941 Due Dates

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

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

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

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

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

Federal Excise Tax Requirements for Small Businesses

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

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

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

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

Tips

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

Make Sure Your Books Are Caught Up

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

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

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

Gather Important Documents

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

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

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

Plan Ahead

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

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

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

xendoo, Offering Proactive Solutions for Your Business

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

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

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

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

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

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

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

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

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

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

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

Table of contents

Why do businesses need receipts?

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

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

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

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

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

Receipts businesses should keep

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

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

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

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

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

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

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

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

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

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

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

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

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

What to do when you don’t have receipts

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

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

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

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

1. The Cohan rule

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

In a nutshell, the Cohan rule says that:

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

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

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

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

2. See if vendors will provide invoices and receipts

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

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

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

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

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

Going through these documents can tell you:

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

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

4. Review your calendar and emails

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

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

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

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

5. Look at location data and maps on your phone

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

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

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

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

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

How bookkeeping and tax services help

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

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

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

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

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

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general business credit

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

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

What is Form 3800? (General Business Credit)

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

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

form 3800

Who must file Form 3800?

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

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

Which tax credits are on the General Business Credit form?

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

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

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

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

1. Determine your tax liability

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

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

2. Calculate your alternative minimum tax

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

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

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

alternative minimum tax

3. Find your general business credit limit

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

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

4. Understand carryback and carryforwards

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

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

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

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

5. File Form 3800 with your tax return

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

  • S Corporation
  • Sole proprietors
  • LLC members
  • Partnerships

Changes to know for the 2022 tax year

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

Child tax credit

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

Electric vehicle credit

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

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

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

Business Tax Rates: How Much Do Small Businesses Pay in Taxes?

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small business tax rates

Filing taxes as a small business owner can be complex, with numerous factors to consider. From tax law revisions to the overwhelming number of forms, understanding your small business tax rate and how to file can be difficult.

Your business entity type and preferred filing status will also affect your tax rate. For example, LLCs that opt for the IRS to tax them as corporations are subject to corporate tax rates. Other businesses like sole proprietorships and limited partnerships may be subject to self-employment taxes. Understanding your entity type and requirements is the first step toward filing your taxes accurately and efficiently.

Tax laws are constantly changing, and it can be challenging to keep up with the latest revisions. A professional tax advisor or CPA can accurately file your business taxes on time. Our experienced tax specialists also know all the deductions and credits that can lower your tax bill.

We’ll cover small business tax rates, filing requirements, and various strategies that can help to reduce your taxes.

Table of contents 

How Are Small Businesses Taxed?

Depending on your business structure and income, you may be subject to one or more types of taxes.

  • Corporate tax
  • Self-employment tax
  • Sales tax
  • Payroll tax

We’ll cover everything you need to know about tax rates for the most popular business entity types—corporations, partnerships, sole proprietorships, and LLCs.

Pass-Through Entities

The IRS considers most U.S. businesses (around 95%) pass-through entities, also known as flow-through entities. Pass-through entities include:

  • Sole proprietorships – Businesses with a single owner 
  • Partnerships – Businesses with two or more owners
  • Limited liability companies (LLCs) – LLC owners can protect their personal assets from their business, but get the tax benefits of a pass-through entity. LLCs can also request the IRS tax them as corporations.
  • S corporations (S corps) – Corporations that have a special tax designation, so the IRS taxes them as pass-through entities.

The biggest advantage of pass-through entities is that they avoid double taxation. The term refers to when the IRS taxes the same income twice—once at the corporation level and again on an individual shareholder’s personal income tax. 

Corporations

A corporation (C corporation) stands alone from its shareholders. The IRS taxes corporations as separate legal entities, which opens them up to double taxation. C corporations must report profits and earnings to the IRS. The IRS then taxes them at the corporate income tax rate. Shareholders still must file their personal income tax returns and report the corporate dividends and capital gains they get as part of their taxable income. 

Let’s say a corporation earns $1,000,000 in profit and then passes on $200,000 in dividends to its shareholders. The business would have to pay corporate income taxes on the full amount of $1,000,000. Individual shareholders would also be subject to taxation on their share of the $200,000 dividend earnings.

The federal corporate income tax rate currently sits at 21%. A corporation with $100,000 in taxable income would owe $21,000 in taxes. With that said, that’s not necessarily the amount you need to pay. You can apply various small business tax deductions and credits to help reduce your tax liability.

While corporations have advantages, double taxation can be a major drawback. Most small businesses operate as pass-through entities instead.

Small Business Tax Rates

Unlike C corporations, the IRS taxes income for pass-through entities at the individual level. Owners file and pay taxes on all income—including business earnings—on their personal income tax returns. However, there are specific forms you need to include depending on your business structure. For example, partnerships will file Form 1065. S corporations will file Form 1120-S. 

If you operate a pass-through entity, your small business tax rate will depend on your income tax bracket. The higher your taxable income, the higher your tax rate. Federal income tax rates range from 10% to as high as 37%. 

It is important to note that pass-through entities may be subject to other taxes, outside of income. For example, you may need to pay self-employment tax. 

Tax rate Single individual income Married (filing jointly) income
10% $10,275 or less $20,550 or less
22% $41,775 $83,550 
24% $89,075 $178,150
32% $170,050 $340,100
35% $215,950 $431,900

Updates to Small Business Tax Rates

The IRS updates small business tax rates yearly to account for inflation or other economic changes. Therefore, you should look out for the latest rules and regulations or consult a tax professional. Legislation also impacts your tax bill. 

Tax Cuts and Jobs Act (TCJA)

For example, the Tax Cuts and Jobs Act (TCJA) made major changes to the U.S. tax code, deductions, credits, and business tax rates. One of the biggest changes is that it lowered the corporate income tax rate from 35% to 21%. It also introduced a 20% deduction for qualified business income (QBI) from pass-through entities. However, some of those changes will phase out in the next few years. 

A total of 23 individual and business tax TCJA provisions are set to expire on December 31, 2025. A tax professional can help you understand these changes and their impact on your business.

Inflation Reduction Act (IRA)

The Inflation Reduction Act (IRA) also influences how much you could pay in taxes. For one, it increased incentives for electric vehicles and other energy-efficient upgrades. 

It also proposed a minimum tax rate of 15% for corporations that have made over $1 billion over three taxable years. This change has little to no impact on small business taxes. Unless you are a large, publicly traded corporation—think Walmart, Amazon, and Apple—it won’t have an impact on your business taxes. 

What Taxes Do Businesses Pay?

Other than income tax, your small business may be subject to payroll taxes, self-employment taxes, and more. In addition to federal taxes, you may also have state and local taxes. Here is an overview of the taxes that businesses must be aware of:

Payroll or Employment Taxes

If your business has employees, then you’ll need to consider payroll tax. Payroll taxes are the taxes employers pay on employee salaries and wages. They include federal, state, and local taxes and Federal Insurance Contributions Act (FICA) taxes. You’ve likely seen FICA taxes appear as Social Security and Medicare on a paycheck. 

The current FICA tax rate is 7.65% for the employer and 7.65% for the employee, or 15.3% total. As the employer, you’re responsible for withholding the appropriate payroll taxes from your employee’s salary and paying them to the IRS.

You’ll also withhold income tax from employees’ wages. To know how much tax to withhold, you’ll need to collect a W-4 Form from employees before they start work. This IRS form has details like an employee’s address, social security number, and tax filing status. 

In addition to withholding and FICA taxes, there are other types of payroll taxes, including FUTA and SUTA. For example, Federal Unemployment Tax Act (FUTA) is an employer-paid tax that funds state unemployment benefits. Likewise, employers pay State Unemployment Tax Act (SUTA) taxes to fund state unemployment benefits.

Quarterly Taxes (Estimated Taxes)

Most sole proprietorships, partnerships, and S corps owners pay estimated taxes to the government on a quarterly basis. Instead of paying taxes all at once, it’s broken into four payments. You must pay estimated taxes if the amount you expect to owe is greater than $1,000.

Quarterly taxes usually fall into two categories—self-employment taxes (Social Security and Medicare) and income taxes. Even though you pay quarterly taxes, you’ll still need to file an annual tax return. 

There are a few ways that you can calculate your estimated taxes. First, you’ll need to estimate your gross income and how much of that is taxable. Then, factor in possible tax savings from deductions and credits. You can also estimate your yearly taxable income and look at the tax rate for your income bracket.

Another method you can use is to look at your tax return for the past year. You can use last year’s figures to estimate your tax liability for this year. However, this method only works if you don’t expect your income to change much year over year.

The due dates are usually April 15, June 15, September 15, and January 15 of each year. However, some of the dates change if they fall on a weekend or holiday. 

Here are the due dates for 2022 and 2023.

2022 tax year 2023 tax year
April 18, 2022 April 18, 2023
June 15, 2022 June 15, 2023
September 15, 2022 September 15, 2023
January 17, 2023 January 16, 2024

If you underpay your estimated taxes or don’t pay them by the due dates, you may be subject to penalties.

xendoo’s business tax services will help you figure out what you owe if you’re unsure of how to calculate your estimated taxes. 

Self-Employment Taxes

You’ll factor self-employment taxes into your quarterly or estimated tax payments. As the name suggests, self-employment taxes are taxes that self-employed individuals must pay. This includes those who own an unincorporated business or another type of pass-through entity.

Self-employment taxes consist of two separate parts: Social Security and Medicare. Currently, the combined tax rate is 15.3%. This situation differs from employers who only have to pay half of their employees’ Social Security and Medicare taxes. You won’t be subject to these payroll taxes if you don’t have any employees.

When filing your taxes, you can deduct your self-employment tax payments as an adjustment to income on your tax return. This deduction ensures that you aren’t double-taxed on the same money. Other tax credits may be available to small business owners to offset some or all of the cost of paying self-employment taxes.

To avoid paying self-employment taxes, consult a tax professional to discuss incorporating your business. You can take advantage of certain IRS regulations for corporations that may reduce your overall self-employment liability.

Sales Tax

While sales tax laws differ by state, retailers generally collect sales tax when they sell tangible goods to customers within their state. 

The location of the sale, not the business location, will determine how much you pay in sales tax. For example, if your business is in one state but sells to someone in another state, you’ll pay the respective state’s sales tax. Certain states have reciprocal agreements that allow businesses to only collect sales tax from customers within their own state. It’s best to check with an accountant or tax professional to comply with the applicable laws.

In most cases, you’ll need to register with the applicable state government before collecting and remitting its sales tax. This process usually requires you to list the items you plan to sell and provide account information. You must also keep accurate records of all transactions made within the state. Failure to comply with the applicable laws could result in penalties, interest payments, and other fees.

xendoo’s bookkeepers and CPAs are familiar with tracking and remitting sales tax for all types of businesses, including ecommerce. If you’re interested in sales tax services, we can do a consultation for your business.

Capital Gains Tax

The IRS collects capital gains taxes on the profits you earn from selling an asset such as stocks, real estate, or other investments. 

Capital gains fall into two categories—short-term and long-term. Short-term gains are from assets that you’ve owned for less than one year before selling. Long-term gains are from assets that you’ve owned for more than one year.

Your capital gains tax rate depends on which category it falls under. The IRS taxes short-term capital gains as income. Tax rates for long-term capital gains are different and usually lower than income tax rates. 

Here are 2022 long-term capital gains tax rates. 

Tax filing status 0% rate 15% rate 20% rate
Single Under $41,675 taxable income  $41,675 – $459,750 Over $459,750
Married, filing separately Under $41,675  $41,675 – $258,600 Over $258,600
Head of Household Under $55,800 $55,800 – $488,500 Over $488,500
Married, filing jointly Under $83,350 $83,350 to $517,200 Over $517,200

Keep in mind that capital gains tax rates can vary from this for particular types like collectibles. The time that you own a capital gain can also impact how much you owe in taxes. 

How Much Do Small Businesses Pay in Taxes by State?

In addition to federal income taxes, you’ll likely have state and local taxes. The federal corporate income tax rate is currently 21%, but most states have individual tax rates and rules. 

Currently, 44 states and Washington D.C. impose taxes on corporate income. Top rates range from 2.5% in North Carolina to 11.5% in New Jersey. 

There are also states that don’t have personal income taxes. If you are in one of the below states, you don’t have to file and pay state income taxes on earnings.

  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Tennessee (on wages)
  • Texas
  • Washington (state)
  • Wyoming

Even though some states don’t have an income tax, they may have other taxes. For example, some states have a gross receipts tax that taxes sales instead of profits. Companies must pay taxes on their total amount of sales, even if they don’t make any profit. Look up your state’s requirements or verify with a tax accountant to comply with the applicable laws.

Small Business Tax Professionals

As a small business owner, filing taxes can be confusing. It can be difficult to understand that tax code and all its complexities. But, with an experienced tax specialist, you shouldn’t have to. 

xendoo is an all-in-one service. We have expert bookkeepers, accountants (CPAs), and tax specialists in-house. Our experts work together on your accounts and know all the tax code changes to file your tax returns accurately. They can also choose the best tax deductions and credits that will save you and your business money. 

Our bookkeeping plans come with flat monthly fees, so you know exactly what you’re paying each month. If you want to get personalized advice from our tax CPAs, you can add on tax services for as little as $100 per month. We’ll file your taxes too. Schedule a free consultation to see how we can help your business.

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