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

2021 Tax Preparation for Small Business

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

If you want to make sure that you and your small business are ready for the 2021 tax season, then it is essential to remain well organized throughout the year. You will also need to make sure that you have documents to support any exemptions that you plan to file. 

Lastly, you need to know about all of the various tax deadlines that might apply to your business throughout the year. After all, missing a deadline can mean that you’ll be faced with some hefty fines!

In order to help, the team at Xendoo has created this guide to tax prep for small businesses. Our goal is to make sure that you have the tools you need to appropriately file your tax return this year.

Know the Key Dates

Due to the unprecedented challenges of 2020, the IRS extended the traditional income tax filing deadline to May 17, 2021. While it remains to be seen whether they plan to do the same for the 2021 tax year, it is a strong possibility. 

The current deadline for business tax preparation and submission is currently April 15, 2022.

When you’re filing your income taxes, keep in mind that many self-employed parties and businesses must submit their projected tax payments every quarter. The filing dates for a business varies depending on whether they operate an S Corp, partnership, sole proprietorship, or corporation.

Other important types of fees that you need to account for during your tax prep include:

Employment Tax

Traditionally, unemployment tax payments and payroll withholdings are submitted either monthly or semi-weekly. You must document these deposits and distribute the appropriate tax documents to your employees at the end of the year.

During the pandemic, businesses were given the opportunity to defer payroll taxes. Half of the deferred tax withholdings must be paid out to the IRS by December 31, 2021. The remainder of the unpaid balance is due by December 31, 2022.

Excise Tax

When you’re planning out tax prep for small businesses, it is essential that you account for the excise tax, as well. If your industry is subject to an excise tax, these fees are usually paid monthly, quarterly, or annually. 

It is important to stick to your prescribed payment schedule. For instance, annual excise tax payments are typically due by May 15th following the applicable tax year.

State Income Tax

Any tax prep for small businesses must also account for state income tax fees. While the federal income tax payment is currently due on April 15, 2022, each state sets their own deadlines.  

It is important to check with your local tax collection authority to verify the filing requirements and any payment deadlines that may apply to your business.

Collect Key Information and Details

Once you are aware of all of these essential dates, it is time to collect some key information for tax prep for small businesses. You need to gather data on:

COGS

The cost of goods sold (COGS) is an essential metric that your small business must track. Not only is this data point important for tax purposes, but it will also help you to ensure that you are properly monitoring the health of your business. 

In order to calculate COGS, you will need to know:

  • The dollar value of your starting inventory
  • Inventory purchases that were made
  • Inventory dollar amount at end of year
  • Inventory removed for personal use
  • Materials and supplies

Without understanding your COGS for the tax year in question, you cannot accurately file your return.

Income

Another essential part of the tax preparation for businesses is income. Make sure that you account for every income source as a part of your regular accounting and bookkeeping. You also need to keep track of various documents, including:

  • Sales records
  • Returns
  • Allowances
  • Gross receipts from service or sales
  • Checking and savings account interest rate accruals
  • Incidental income, rental income, tax credits, etc.

Failing to properly list all of your income during a given tax year can create civil liability or cause you to incur various fines.

Expenses

Tracking your company’s expenses throughout the tax year is also vital. By documenting and claiming these expenses on your taxes, you can gain access to various deductions and cost-savings opportunities. 

Make sure that you document every business-related expense that you incur during the year, including:

  • Phones
  • Computer-related expenses
  • Marketing
  • Travel expenses
  • Contract labor
  • Fees and commission costs
  • Office supplies
  • Attorney’s fees
  • In-home office costs (if applicable)
  • Repairs/maintenance
  • Estimated tax payments
  • Insurance costs

Every one of the fees above can be claimed on your taxes. However, you’ll need to have proper documentation on hand to support these deductions.

Work with a Tax Professional

As you can see, tax preparation for businesses can be an incredibly complex process. That is why you should partner with a proven tax professional to ensure that your taxes are filed in accordance with state and federal regulations.

When they’re seeking out professional tax prep for small businesses, many companies seek out bookkeepers or CPAs (certified public accountants). However, it is important to understand bookkeeper or accountant costs before you commit to a financial relationship with a given provider.

Traditionally, a bookkeeper will charge anywhere from $30 to $90 hourly. CPAs charge more, due to their expertise. You can expect to pay approximately $150 to $450 hourly for a CPA. However, you might only need a CPA for occasional tasks, like audits or filing your tax returns.

If you are looking for an alternative option, consider partnering with an accounting service provider like Xendoo. We offer tax return and online bookkeeping services that are billed at a fixed monthly rate. 

Some of the benefits of working with our team include:

Ability to Save Time and Money

Professional tax prep for small businesses can provide your organization with some huge benefits. For starters, it can help you save money. 

If you miss a single tax credit or deduction opportunity, this mistake can cost you thousands of dollars. A professional tax prep service like Xendoo can carefully review your documents line by line to ensure that every single deduction is filed properly.

In addition to saving you money, relying on professional business tax preparation services will also reduce the amount of time that you have to spend filing various documents with the IRS. 

For the inexperienced business owner, it can take hours to fill out and submit all of the required tax documents. As a small business owner, do you really have time to waste? 

Tax Pros Can Resolve Common Issues

During the course of tax prep for small businesses, you are likely to encounter questions. If you want to be able to get access to professional help, Xendoo makes it easy.

When you’re working with a tax prep professional, you can ensure that you have all of the latest information on IRS filing requirements. If you run into an issue during the filing process, we will make sure that it gets resolved fast.

Peace of Mind

When this tax year comes around, don’t waste months stressing out and scrambling to collect the right documents. Instead, invest in professional tax prep for small businesses and gain some peace of mind. 

You can rest assured knowing that your tax documents are in good hands with a professional. It can even reduce the risk of getting audited, which provides an added layer of protection for your small business.

2021 Tax Prep for Businesses

Don’t waste another year struggling to file your own tax documents. Contact Xendoo and take advantage of our reliable and affordable tax prep services. Our platform provides the latest online bookkeeping features, a user-friendly interface, and all of the tools you need to keep track of your financial information. 

An Amazon sellersets up her accounting reports on her computer

A Guide to Tax Savings for Consultants

An Amazon sellersets up her accounting reports on her computer

If you’re living the independent consultant life, you probably think it’s pretty sweet that you don’t have a boss over you, telling you what to do. But aside from your mini-bosses (AKA clients), you still have one more entity to which you report: The IRS. 

The IRS watches consultants closely, and every tax dollar that is owed has to be accounted for. The good news is that the money you spend on your business can often become “yours” again through tax savings.

Here are some tax-saving tips for consulting firms to minimize what they owe to the IRS at the end of the fiscal year.

Internet, Phone, & Business Utilities

Whether you work from a home office or rent a separate building that you commute to, the cash you spend on the necessities of doing business can often be deducted. 

Keep track of your basic operational overhead, including internet costs, your cell phone minutes, electricity bills, and any other utility costs that come about in the normal course of business.

Don’t forget about the software you use. If you have any subscriptions for programs like Microsoft Office or Adobe Suite, they might just be deductible expenses. Although it can be a pain to subscribe for software instead of purchasing it outright, as far as your tax returns are concerned, they’re the gift that keeps on giving!

Office 

Perhaps you have a home office. Congrats! Working from home means your commute is simply a few steps that you can take in your slippers and robe. But is it a source of tax savings?

The IRS lets you deduct the expenses related to this space as long as it is solely used for your consulting duties. For your home office, there are two ways to write off costs for your tax return:

Actual Expense Method 

The total expenses for your office include “direct expenses” for things like supplies and repairs, as well as “indirect expenses,” which might account for portions of your utilities, mortgage, and insurance.

The Simplified Option

Take the standard rate (which is currently set at five dollars) and multiply it by the square footage of your office (as long as it’s less than 300 square feet). If you take this option, you can still write off your office supplies, too!

If you commute to a separate fixed location office, know that you can’t deduct your mileage to and from that office. You can, however, deduct any business insurance you pay, as well as rent or any utility bills.

Entertainment and Meals 

Be prepared to defend your entertainment, travel, and meal expenses to the IRS! They’ll want to ensure that these costs were truly necessary for doing business, like meeting a client at a restaurant to talk shop or taking them to a show. 

Unfortunately, you can’t deduct a meal that came with entertainment, thanks to the Tax Cuts and Jobs Act, unless the meal was a separate expense from the entertainment portion.

You can deduct 100% of your travel fees, airfare, gas, and hotels, while you can also deduct 50% of your meal costs. 

Deducting anything that could (to an outside observer) look like pure fun, rather than work is where you’re going to need impeccable accounting and bookkeeping. It would be wise to keep a journal of your travel activities should the IRS have any questions for you.

Educational Materials and Courses

Whether you’re starting your consulting career right out of school or you’re a lifelong learner, your thirst for knowledge can come with some serious tax savings. 

Education tax credits and the Lifetime Learning Credit can earn you tax breaks if you’re taking courses at a recognized institution of higher learning. If you’re paid for any seminars, lectures, conferences, or even any certifications, write those costs off, too!

Not only can education lower your taxes, but anything that could be considered to be education is most likely deductible, too! 

Your magazine subscriptions and books (related to your industry), as well as research services, allow you to stay on top of the latest developments in your field. 

As a short aside, this is the kind of thing your clients will want to see, too. Positioning yourself as an expert that keeps abreast of trends and news for your area of expertise proves you’re worth your customers’ money and time!

Mileage 

If you take the standard mileage deduction, it does reduce your upfront work when it comes to keeping track of vehicle-related expenses. However, you won’t be able to write off your gas, repairs, maintenance, or insurance. 

If you want to get the biggest possible tax savings, go the extra mile and track your mileage!

Let’s say you choose to keep track of work-related car use. Remember that you can’t deduct mileage to and from your house and your permanent office location, even if you’re meeting with a client. 

You can write off your mileage when you’re commuting to meet clients at other locations, as well as when you run work-related errands. Write down your odometer readings or find an app that lets you track mileage.

Office Supplies 

Look around your desk. That stapler? Those pencils and pens? The paper in the printer? Post-It Notes? Stamps? Write them off! You can also deduct printing services. 

Any consumable materials you use in the course of your work in your office, as long as they are being used for work, count as expenses you can deduct.

Marketing and Advertising 

Building your brand will require getting your name and logo in front of as many eyes as possible. Your web hosting service, graphic design, and any ads you run, regardless of the medium, are deductible expenses. 

Now, if you’re savvy and able to do some of the work yourself, like photoshopping a logo or building your website, unfortunately, you can’t deduct what you would have spent for someone else to do the work for you! 

You might be able to create graphic designs worthy of tens of thousands of dollars, but unless that’s what you spent to have someone else do it, just consider it to be upfront savings, as it’s not a deduction.

Health Insurance 

As an independent consultant, you will have to pay for your own health insurance, but the good news is that it is a deductible cost. All health, dental, and vision coverage you purchase for yourself and your family can be written off. However, if you’re covered under your spouse’s plan, you can’t deduct those costs.

Client Gifts

Write off expenditures of up to $25 for any client gifts. The more clients you have, the more you can give. The more you can give, the more you can write off. 

However, if you choose to buy a client a solid rosewood dining table that costs as much as a new car — sorry, you’ll only be able to write off $25 of what you spent! 

Keep in mind that the IRS will frown on you giving multiple $25 gifts to the same client at the same time. These don’t count as separate gifts — they’ll be considered to be one lump expenditure.

Be Your Own Boss (and Spend Less Doing It)

As you try to figure out what is the best business structure for consultants, you might feel alone as you gain your footing. Know that it’s a path that many others have walked before you. The IRS will be watching you closely, but your friends at Xendoo are watching them right back! 

We help consultants every day with bookkeeping and tax preparation services. Going out on your own doesn’t mean going it all alone. Contact us today and give yourself the best start you can as you forge your path to being a successful independent consultant.

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

How to Prepare Your Business for Tax Time

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 with their tax preparation, 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 typically April 15, but the IRS moved this deadline to March 15, 2021 for this past year. Deadlines for state income tax can vary, so your state’s tax collection authority can be a helpful tax guide for local deadlines.

2021 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 15
  • Third Quarter: September 15
  • Fourth Quarter: December 15

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, 2021, or the 15th day of the third month following the end of the organization’s tax year. 

These organizations must generate a Schedule K-1 earnings statement for each partner or for the 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 15, including any interest and penalties.

Corporate Income Tax Returns

Companies must submit a corporate income tax return by April 15, 2021. 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, 2021. 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 2020, your quarterly tax payment for 2021, and any penalties or interest no later than October 15, 2021.

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.

Employment Taxes and Payroll Withholdings

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

  • April 30
  • July 30
  • October 29
  • 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 30
  • October 29
  • January 31, 2022

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 head. 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 $60 an hour, it can be difficult 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.