- Tax Day is Monday, April 15, 2019. Get everything ready now.
- If your business is anything besides a simple sole proprietorship, you should engage a tax professional to help you.
- As a small business owner, you have a long list of documentation to organize. Get started on it ASAP to reduce the stress levels of this time of year.
Once you begin officially adulting, the only day that comes faster than your birthday is Tax Day. Every year on April 15 (except when it falls on a weekend), the small business world scrambles along with everyone else to get its taxes filed, each owner hoping they paid enough estimated tax that they won’t have to cough up much more.
Start getting ready for Tax Day now and reduce your anxiety levels.
Tax Prep – DIY or Get a Professional?
If you are a sole proprietor with no assets to depreciate or cost of goods sold, you might be able to get away with using a tax software program. That is, if you don’t have other tax circumstances that complicate matters.
However, most of you should consult a tax professional—in particular, one who understands small business tax requirements and pitfalls. If you are in a partnership, hold inventory, or have multiple business expenses, professional tax preparation could keep you out of hot water with the IRS.
Before hiring a CPA, enrolled agent, or other tax preparation professional, pull together all of your documentation and organize it.
Tax Forms for Small Business
Depending on your business structure, here are the forms you need to support your Form 1040.
- Sole proprietors and single-member LLCs – Schedule C. Instructions.
- Partnerships and multiple-member LLCs – Form 1065 – Return of Partnership Income. Instructions.
- Partnerships and multiple-member LLCs – you will also need Schedule K-1. Instructions.
When you take your first look at these forms, asking for help from a professional suddenly makes a whole lot of sense.
Your small business can generate a load of paperwork, even if most of it is now in the form of electronic files stored on your computer’s hard drive or in the cloud. You may also still have quite a bit of hard copy. Here are some types of documentation you may need to reference when filing taxes:
- Income documentation – gross receipts from sales or services; sales records; returns and allowances; business checking and savings account interest (another form – 1099-INT or statement); and other income.
- Cost of Goods Sold documentation – inventory; beginning and ending inventory total dollar amounts; inventory purchases; items removed for personal purposes; and materials and supplies.
- Expenses – advertising; phones of any sort; computer and Internet; transportation and travel (local or away from home); commissions paid to subcontractors; and depreciation.
- Even more expenses – business insurance; interest paid; professional fees (including your tax preparer); office supplies; rent; home office; wages and benefits for employees; and other expenses like repairs and maintenance.
- Self-employment taxes.
Don’t forget to provide documentation about a very important expense: the estimated tax payments that you have (hopefully) already made.
When determining your deductions, be sure you have kept records for auto deductions, including mileage, tolls, and parking fees. Petty cash purchases and educational classes may also be deductible—but don’t exaggerate.
ALERT – Changes in the Tax Law for 2018
Congress passed a hefty piece of tax reform legislation that went into effect on Jan. 1, 2018 and will impact your personal and business taxes for this year.
Most important to the small business owner, there is a new 20 percent tax deduction on self-employed income for owners of pass-through entities (partners in partnerships, S-corporations, members of LLCs, and sole proprietors).
If you are a sole proprietor or a partner or member of one of the above entities, you may be eligible for a 20 percent deduction on all qualified business income. Qualified business income is the net amount of business income and deductions for your trade or business. It can include:
- Business income from services and rental properties.
- Income from sole proprietorships.
- Pass-through income from partnerships, S-corps, estates and trusts.
Note: C-Corporations do not qualify for this deduction.
Another change is an increase in auto depreciation. Also, you can still deduct 50 percent of food and beverage expenses associated with business operations; however, the deduction for entertainment expenses directly related to or associated with the conducting of business has been repealed.
If you have any questions about your taxes, consult a tax professional as soon as possible. Don’t wait until midnight on April 14 to ask for help. By then it may be too late.