Being an independent small business owner has its everyday problems, when tax season approaches, those issues seem to increase tenfold; typically based on stressed. In order to make your filing as easy as possible and keep that stress level down, we put together four basic steps to follow so that your taxes go as smooth as possible and keep your business out of hot water with the IRS.
Step 1 – Collect your records
If you ask any successful small business owner what the key to doing their taxes properly is, they’ll likely tell you how organized they are. Before you even think about filling out a form, get all you business records together to show all earnings and expenses. Be diligent throughout the year and try to keep certain receipts or documents organized by categories. When the time gets closer, you can sort through them again and hopefully get a good idea of exactly where everything is. This will make the rest of the filing process A LOT faster.
Step 2 – Find the right form
You always need to report your business earnings to the IRS and pay taxes on them, but choosing the right form to report your earnings on depends on how you operate your business. Determine the correct IRS tax form that you need (Schedule C or Form 1120). Many small business owners use a sole proprietorship which allows them to report all of their business income and expenses on a Schedule C attachment to their personal income tax return. If you run the business as an LLC and you are the sole owner, the IRS also allows you to use the same attachment..
Step 3 – Fill out your form
Fill out your Schedule C or Form 1120. If you will be reporting your business earnings on a Schedule C, you can search the IRS website for a copy or use H&R Block to generate the form for you after you input all of your financial information.
Schedule C is a simple way for filing business taxes since it is only two pages long and lists all the expenses you can claim. When complete, you just subtract your expenses from your business earnings to arrive at your net profit or loss. You then transfer this number to your personal income tax form and include it with all other personal income tax items. The Form 1120 is much more detailed and complex, you may want an H&R Block professional to help you if you have to go down that route.
Step 4 – Pay attention to deadlines
Be aware of different all the different filing deadlines. When you use a Schedule C, it becomes part of your Form 1040 and therefore, no separate filing deadlines apply. It is generally subject to the same April 15 deadline. For other forms there are other requirements and deadlines so do your research or get help from a professional.