Please note that this information is for US-based businesses only.
Whether or not you have just started your business, or have been in operation for the last 15 years, the one sting that we will always feel is when we reach tax-time. This simple guide is aimed to assist you in getting organized and prepared to file your tax return by looking at 8 simple steps.
Don’t Forget The Deadlines
When we reach tax-time, it is vital that you do not make the costly mistake of missing out on the deadline to file your tax return. If you are a business, your tax is due on April 15 (March 16 if you are a corporation). You may also need to submit further supporting documents to the IRS before these dates. Just to make sure, write down the following dates in your diary so you do not forget:
February 2 (1099 and W2 forms must be post-marked): these forms are due only if you paid an independent contractor or employee more than $600.
March 16 (all Corporate tax returns are due): the 1120 and 1120S forms are due by today. If you cannot meet this deadline, you must apply for a tax extension.
April 15 (all Individual and Partnership tax returns are due): the 1040 and 1065 forms are due by today. If you cannot meet this deadline, you must apply for a tax extension.
Go Digital With Your Receipts
There is nothing worse than sorting through a mountain of paper come tax-time, so one way to greatly alleviate this problem, is to turn all of your receipts digital. Come tax-time, all you will need to do is flick between digital files instead of paper, and here are a few tools which can help you achieve this:
Evernote (FREE): You can store scans or photographs of all of your receipts for free here.
ShoeBoxed (up to $100/month): If you do not have the time to individually take a photograph or scan of your receipts, you can mail them off to this company who will do all of the work for you.
Expensify (from $5 per month): A great tool which allows you to take photos with your mobile phone on the go. In addition, all electronic payments linked to this account will automatically have their receipts stored – however, you will need to input cash payments manually.
Keep Your Records Up To Date
By keeping all of your business records neat and up-to-date, you not only have a very tidy view of your business, but you also prevent yourself from making an accidental false claim to the IRS by submitting incorrect information from an untidy book. Keeping your bookkeeping records up to date also will greatly assist you should you ever be audited – you will have complete records of your business’ activities.
Submit Your 1099’s
As discussed above in the deadline information, if you paid an independent contractor or employee more than $600 in the financial year, you will need to submit your 1099 form by February 2 (to the contractor) and by February 28 to the IRS (or March 31 if submitting online).
Know Your Sales Tax Requirements
You will always want to consult with your accountant when dealing with sales tax laws, as many states have different requirements. This especially applies to businesses if they are developing a “nexus” in another state. This term basically means that if your business develops a physical connection to another state, you must collect sales tax in that state too. Most commonly, a nexus is developed from one or more of the following:
Your office space
Selling at a trade-show or convention
Where you store your inventory
You are legally obligated to collect sales tax in any state where you have developed a nexus, so always make sure that you consult with your tax accountant who will be able to advise you on your obligations and tax requirements.
Extensions On Filing Your Tax
If this is your first tax return, or you perhaps need some more time to go over your records before your file your tax, consider submitting an application to have an extension on the date that you need to file your tax by. Note though, that applying for an extension does not get you out of your tax liability. As a guide, the dates for submission must be by:
Corporations (March 16): form 7004 for automatic 6-month extension.
Partnerships (April 15): form 7004 for automatic 6-month extension.
Sole Proprietors (April 15): form 4864 for automatic 6-month extension.
Be Aware Of Your Tax Deductions
You will be surprised as to how much you can actually claim on your tax as deductions. The following deductions are all under Schedule C on Form 1040 (however, consult with your accountant if your business is new as these may fall under ‘start-up’ expenses).
In order to be eligible for the home office deduction, you must meet 3 requirements: exclusivity (working area must be solely for business), regularity (work area should be used frequently), and precedence (most of your time is spent in your home office, and most of the important business activities are conducted here). There are also 2 different ways of calculating this deduction:
Simplified method: a standardized deduction where you take $5 per square foot of your home that is used solely for business, up to a maximum of 300 square feet.
Regular method: you must calculate the percentage of your home that is used for business by dividing the area that you use for business by the total area of your home. You must use the 8829 Form for this method.
Can be deducted if the education expenses add value to your business or increase your expertise.
Phone And Internet Expenses
You may deduct the full cost of your phone plan if it is used solely for business purposes. If you share the phone with your home, then you can only claim for that percentage of use. It might be a good idea to keep your phone records so that you can determined what phone calls were made for your business. You can also deduct the expenses of using Skype and Google Voice, and your internet – however, you will need to work out the percentage of use should you share any of these with your home life.
Domain And Web Hosting
Both of these are fully deductible, as is the cost of any template or any custom Shopify theme that you purchase for your business.
If you hire an independent contractor, you can claim it as a deduction.
If you ship your products to your customers, then the costs of packaging and postage can be claimed.
Use Of Your Vehicle
Always keep a record of the mileage that you use in your car exclusively for business use because it can be claimed as a deduction.
Online Service Fees
Any costs of using Shopify, Shoeboxed, or any other app or tool which assists you in running your business can also be deducted.
Cost Of Equipment
Always work with an accountant when deducting equipment costs, as there are a few methods of working it out. You may claim the expense on depreciation or through a section 179 deduction, and your accountant may even want to claim the deduction as a standard business expense. Business equipment can include things like your business computer, camera and cell phone.
Professional Service Expenses
You can claim deductions for the expenses which you incur by contracting the work of professionals to assist your business, such as lawyers and accountants.
Find The Right Accountant Which Specializes In Your Industry
Always find an accountant who is knowledgeable about the industry of which your business is in, as each business will have their own specific needs which will need to be catered for. You should also ask them if they charge by the hour or by a flat-fee, and you should also ask them the following 3 questions:
What local tax credits are available to me?
Have I developed a nexus in any other states that I need to claim sales tax for?
Should I change my business structure?
Taxes are not something that many people enjoy, but they are a vital and necessary aspect to your business. Follow these simple steps to minimize the stress involved when it comes to tax time so that you can claim back as much as possible for your business.