As a small business owner, you wear many hats. You’re the CEO, CFO, marketing guru, and often, the janitor too. But when it comes to taxes, it’s essential to don the hat of a tax pro, at least to some extent. Why? Because taxes can make or break your business. In this article, we’ll guide you through the essential steps to prepare for taxes, ensuring you’re not caught off guard when tax season arrives.
Step 1: Obtain Necessary Identifiers
Before diving into tax preparation, you need to obtain the necessary identifiers for your business. These are a few places to start:
~Employer Identification Number (EIN): This is a unique nine-digit number assigned to your business by the IRS. You’ll need it to open a business bank account, file taxes, and hire employees. Apply for an EIN online through the IRS website.
~Business Licenses and Permits: Check with your state and local government to obtain any necessary licenses and permits to operate your business legally.
Step 2: Choose a Business Structure
Business structures determines how an entity be taxed. The most common structures are:
~Sole Proprietorship: business income is reported on a personal tax return.
~Partnership: Partnership return is filed by each partner and they report their share of income on their personal tax return.
~Corporation: Corporate tax return is filed by shareholders and they report dividends on their personal tax returns.
~Limited Liability Company (LLC): This option allows the choice of taxation as a sole proprietorship, partnership, or corporation.
Consult with Lasiter & Lasiter or your attorney to determine the best structure for your business.
Step 3: Set Up a Record-Keeping System
Accurate record-keeping is crucial for tax preparation. Set up a system to track:
~Income: Keep records of all business income, including invoices, receipts, and bank statements.
~Expenses: Track business expenses, such as rent, utilities, supplies, and travel expenses.
~Assets: Record business assets, like equipment, vehicles, and property.
~Liabilities: Keep track of business loans, credit cards, and other debts.
Step 4: Understand Tax-Deductible Expenses
As a small business owner, you may be able to deduct certain expenses on your tax return, reducing your taxable income. Common deductions include:
~Business Use of Your Home: If you work from home, you may be able to deduct a portion of your rent or mortgage interest, utilities, and other expenses.
~Travel Expenses: Keep records of business-related travel, including transportation, lodging, and meals.
~Equipment and Supplies: Deduct the cost of equipment, software, and office supplies.
~Professional Fees: Deduct fees paid to lawyers, accountants, and consultants.
Step 5: Determine Your Tax Filing Requirements
Depending on your business structure and income, you may need to file various tax forms, such as:
~Form 1040: Personal income tax return
~Form 1065: Partnership tax return
~Form 1120: Corporate tax return
~Form 941: Employer’s quarterly federal tax return
~Form W-2: Employee wage and tax statement
~Form 1099: Miscellaneous income statement
Step 6: Consult a Tax Professional
While this guide provides a solid foundation, it’s essential to consult a tax professional, especially if you’re new to business ownership. As we’re in the Indianapolis area, and serve many industries in Indiana, we can help with the rest of the US as well. At Lasiter & Lasiter, we can help you:
~Navigate complex tax laws: Ensure you’re taking advantage of all eligible deductions and credits.
~Assist with audits: We can help you avoid common mistakes and/or advise you if you are subject to an audit.
~Plan for tax savings: We can help you develop a tax strategy to minimize your tax liability.
Step 7: Stay Organized and Up-to-Date
~Following reputable tax professionals on social media
~Attending tax seminars and workshops
By following these steps, you’ll be well-prepared for tax season and can focus on growing your business. Remember, tax preparation is an ongoing process, and staying organized and informed will help you navigate the complex world of business taxes.
Conclusion
As a small business owner, taxes can be overwhelming, but with the right preparation, you can minimize your tax liability and maximize your profits. By obtaining necessary identifiers, choosing a business structure, setting up a record-keeping system, understanding tax-deductible expenses, determining your tax filing requirements, consulting a tax professional, and staying organized and up-to-date, you’ll be well on your way to tax success. Contact Lasiter & Lasiter today to get a professional tax preparer on your team!
