Accountants, business owners, and individuals aren’t safe from tax-time stress. One in four Americans say tax season is so stressful and complicated that they procrastinate filing. So whether it’s your first or 31st time filing taxes as a business owner, there are ways to simplify the process. You need a cheatsheet of small business tax tips.
From diligent recordkeeping to claiming the home-office tax deduction, these tax tips for small businesses can prepare you for the big filing.
Why tax season preparation matters
There’s a reason why tax time is the busy season for accountants. Nobody wants an IRS audit. And everyone wants to maximize their refund.
For many individuals, tax filing is a matter of receiving Form W-2 and entering the numbers into Form 1040.
Tax season takes on another level when you run a small business. You don’t just plug in numbers from a W-2. You have to pull data from multiple sources to complete your business tax return. Filing your small business tax return takes longer and is more stressful if your records are disorganized and incomplete.
Use small business tax tips to help you prepare for tax season ahead of time. Tax tips for small business owners can help you:
- Avoid filing late and incurring penalties
- Get the full tax breaks your business is entitled to
- Ensure your tax return is accurate, reducing audit triggers
- Streamline your tax filing process and reduce stress at tax time
5 Small business tax tips
Knowing how to file a business tax return is part of being a business owner. Check out the following five tax tips for small businesses to get started.
1. Understand your tax responsibilities
The most important tax tip is to know what tax return you need to file and when it’s due. Otherwise, the IRS could charge you penalties and interest.
Your company tax return and deadline depend on your business structure:
| Business Structure | Business Tax Return | Filing Deadline* |
|---|---|---|
| Sole proprietorships and single-member LLCs | Schedule C (Form 1040) | April 15 |
| Partnerships and multi-member LLCs | Form 1065 Schedule K-1 (for partners) | March 15 |
| Corporations and LLCs taxed as a corporation | Form 1120 | April 15 |
| S Corps | Form 1120-S | March 15 |
*For businesses whose fiscal tax year ends on December 31.
Heads up! Most business owners must pay estimated taxes throughout the year. Sole proprietors, partners, and S Corp shareholders with a tax liability of $1,000 or more generally must make estimated tax payments. Corporations with a tax liability of $500 or more generally have to make estimated tax payments. For more information on estimated taxes, consult the IRS website.
2. Record everything
Are you diligent about updating your books each time you receive income or make a payment? If you aren’t, now is the time to start.
Record every transaction in your accounting books and hang onto receipts. Your receipts should show the transaction amount, date, place, and expense type.
Business records and receipts for taxes include:
- Cash register tapes
- Invoices
- Credit card statements
- Account statements
The more organized you are for tax time, the sooner you can start filing your return. Keep paper or digital receipts and documents in a secure location. Some accounting systems let you attach receipts directly to transactions so everything is in one place.
Pro tip: Separate business and personal funds. If you haven’t already, open a separate business bank account. Separating your funds makes it easier to file your business tax return, organizes your accounting records, and helps you avoid overspending.
3. Claim tax deductions and credits
“All these big companies, they just write off everything!” Sure, Kramer might not have entirely known what a write-off was on Seinfeld. But, he’s not wrong—savvy businesses know what a write-off is and they know how to use it to lower their tax bill.
A write-off is a business expense that you can claim to lower your tax bill. You can lower your business tax bill through tax deductions and credits. Both lower the amount your business owes in taxes but work differently. A tax credit is a dollar-for-dollar tax liability reduction, whereas a tax deduction reduces your total taxable income.
Tax credits for businesses include research and development (R&D), small employer health insurance, and paid family and medical leave credits.
Tax deductions for businesses include home office, business mileage, and charitable contribution deductions.
Research tax deductions and credits to find out whether you qualify. If you work with an accountant (small business tax tip #5), your accountant can help you maximize your savings.
4. Use accounting software
No matter how you structure your business, the business tax returns all want the same basic information: income and expenses. So, why not use a system that makes tracking your income and expenses easy?
Say goodbye to shoeboxes full of receipts—and goodbye to the dreaded tax time scramble. With accounting software, you can track expenses and income in one secure location.
Accounting software has other features that can simplify tax time preparation, including:
- Automatic bank transaction imports
- Account reconciliation
- Accounting reports, like your profit and loss statements
- The ability to attach receipts and other documents to your transactions
There are several accounting software systems on the market. When shopping for the best small business accounting software, consider factors like cost, support, learning curve, and what features you need.
5. Work with an accountant
An experienced accounting professional will help you look over your books, analyze your financial statements, and prepare tax returns. Accountants know which tax credits and deductions you may be eligible for.
To simplify tax season, work with the right accountant. Use referrals and online directories to find an accountant for a small business.
Work with your small business accountant throughout the year to stay organized and prepare for tax time.
Other small business accounting services you might take advantage of include:
- Budgeting
- Seeking financing
- Cash flow forecasting
- Month-end closing
- Advising on business decisions
Time-saving tip: If you use accounting software, you may be able to give your accountant direct online access to your books. For example, businesses that use Patriot’s Accounting Premium can add their accountant as a user and assign permissions to access some or all accounting tasks.
Tax tips for small business: The takeaway
Tax season is inherently stressful, but it doesn’t have to be.
You can take the stress out of tax season by following simple small business tax tips like:
- Understanding your tax responsibilities
- Recording everything
- Claiming tax deductions and credits
- Using accounting software
- Working with the right accountant
Set yourself up for success by planning for tax season year-round. Don’t let stress and confusion cause you to procrastinate (it’ll only lead to more stress and confusion!). Instead, stay organized, plan accordingly, and treat every day like tomorrow’s Tax Day.
Get tax time ready with Patriot’s online accounting software. Organize and update your records in real-time so you’re not scrambling at the last minute. Track expenses and income, reconcile your accounts, automatically import your bank transactions, and so much more. See how Patriot’s accounting software works with a no-obligation demo!
This is not intended as legal advice; for more information, please click here.
