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It’s not uncommon to hear stories on the news about businesses getting tax breaks from the government. They may even be granted tax breaks to build their business in a certain location or to make capital investments.
So, it might be surprising to learn that 93% of all tax dollars collected are paid by businesses across the US.
As a business anticipates tax season, there are several things they can do to prepare.
Read on to learn what you need to know as you prepare to file business taxes.
Gather All Tax Documents
Before filing tax returns, you want to take the time to get organized. Preparing for tax season means gathering all the documentation and paperwork you’ll need to file.
If you’ve been in business longer than a year, the first thing you’ll want to pull out is your taxes from last year. The good news is that these taxes will contain the tax return information you’ll need to get started this year.
You will also need your taxpayer identification number (TIN). This is the business equivalent of an individual’s social security number. The TIN is how the IRS identifies you as a business and the taxes you pay to the IRS.
Next, you’ll need your accounting records including things like income statements, balance sheets, and payroll records.
You’ll also want bank statements, credit card statements, and any receipts you need to make deductions.
Decide On Your Business Format
The IRS recognized 5 different business entities. In fact, when you organize and start a new business, it’s one of the first things you’ll need to decide.
The business entities are:
- C Corporation which will use Form 1120
- S Corporation which will use Form 1120S
- A partnership that will use Form 1065
- Sole Proprietorship which will use Schedule C attached to Form 1040
- Limited Liability Company (LLC), forms will vary
Each type has different tax considerations, so it’s good to have done your research on this early.
Know What Taxes You’re Expected to Pay
The size of the business and if the business has employees will impact how much a business must pay in taxes and what type of taxes.
Generally, the business will pay income tax, payroll tax, and sales tax.
A business must report many numbers related to its employees. This will include:
- Income tax withheld from wages
- Taxable social security wages
- Taxable social security tips
- Taxable Medicare wages and tips
- Taxable wages and tips subject to Medicare Tax withholdings
Another important consideration is the Employee Retention Tax Credit. Learn more about it at Erctoday.com.
Calculate and File Business Taxes
Often filing taxes for a business is complicated because you want to take advantage of every tax deduction and credit available to you.
Once you’ve gathered all the necessary information, you can either go to the IRS website and get the necessary forms to calculate your taxes.
Many businesses also opt to pay a tax professional to guide them through their tax filing.
Be Prepared for the Season of Small Business Taxes
Having to file business taxes might seem overwhelming at the onset. But with the organization and record-keeping, you should be able to navigate the process well.
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