It’s your first year as a new business owner, and tax season is here. While you may have filed before as an individual or employee, business filing is a lot different. Filing for business is a much more complex process and requires much more information than simple income vs. deduction calculations of a W-2 filer.
While it may be stressful and overwhelming at times, it is something that business owners must deal with on a regular basis, yearly and quarterly. If you’re filing for the first time, and you aren’t sure just what steps to take and in what order, keep reading to learn more about what you should expect as a new business during tax season.
Tax Season Filing Procedures Differ Based on Business Structure
Your federal tax filing obligations and due dates generally are based on the legal structure you’ve selected for your business and whether you use a calendar or fiscal year.5
If you are the sole proprietor of a business, you must file schedule C with your form 1040 to report your business’s net profits and losses. You must also file as self-employed (SE) on your 1040. If you’re a calendar-year taxpayer, your tax filing date is April 15. Fiscal-year taxpayers must file their returns no later than the 15th day of the fourth month after the end of their tax year.
You Will be Required to Make Payments
You will also be required to make estimated tax payments if you expect to owe at least $1,000 in federal tax after subtracting your withholding and credits, and if your withholding is expected to be less than 90 percent of the tax shown on your current years tax return or 100 percent of your previous year’s tax liability.
It is important to note that as you will be required to account for taxes in your budget and make the proper payments to the IRS, rather than having them withheld by a payroll company as with W-2 filing status. This means that you will no longer be receiving a tax refund as you would have when working as an hourly employee. So you need to track your expenses, as well as total income. It may be a good idea to hire a professional to prepare your business tax return.
Tax-Deductible Business Expenses
According to the Internal Revenue Service, the basic operating costs of running a business are deductible if they are “ordinary and necessary.” The IRS defines “ordinary” expenses as that are common and accepted in your field of business. “Necessary” expenses are those that are appropriate and helpful for your business.
Equipment purchases like computers and other tech, advertising expenses, overhead costs, insurance, office supplies, wages and other costs related to running a business are all deductible purchases.
If you use your car for business purposes, the IRS allows you to either deduct your business-related expenses or claim the standard mileage rate, which is a specified amount of money you can deduct for each business mile you drive.
These are just a few examples of potential deductible expenses come tax season. You should discuss all possible deductions with a qualified financial advisor.
Consider Hiring a Professional
You may want to consider hiring a tax advisor during tax time to help you maximize deductions, as well as ensure that your tax return is complete and properly filled and filed A professional will also be able to make sure that your startup is meeting its tax burden.
By working with a professional, you can determine the best course of action for your business, and potentially create mutually beneficial working relationships that could help you grow your small business into a corporation.