Filing taxes for any small business is daunting. Between understanding the proper forms to fill out, submitting them on time and being aware of all the changes happening in local, state and federal laws – paperwork overload can be downright overwhelming. But it doesn’t have to be!
From understanding your tax requirements to filing the returns on time, here are our best tax tips for small businesses to help take some of that stress away so you can breeze through the filing process.
Understanding Tax Requirements Based on Business Structure
First off, you need to understand your legal business structure before filing the taxes. Understanding how your small business is classified can make an immense difference in how much you pay in taxes, and the paperwork you need.
Here are some of the common business structures in the US:
- Sole proprietorship: Perfect for a low-risk business. You own a sole proprietorship if your business and personal assets and liabilities are not separate, and you do not register as any other kind of business.
- Partnership: This is the simplest business structure for a business owned by two or more people. This structure is most common for professional groups and groups who are testing their business idea before formally forming their business.
- Limited liability company (LLC): This structure works for owners of medium- to high-risk businesses. Profits and losses can be passed through your personal income, so significant personal assets can be better protected.
- Corporation – C Corp: Offers the most protection to its owners, but formation costs more than other business structures. This structure is a separate legal entity from its owners, meaning it can make a profit, be taxed, and be held legally liable on its own.
- Corporation – S Corp: Allows profits and losses to be passed through directly to the owners’ income without the corporate tax rate, avoiding the double taxation that some C corps may face.
- Corporation – Nonprofit: Organized for education, religious, scientific, literary, or charity work. Nonprofits can receive tax-exempt status but follow special rules regarding how their profits may be spent.
Typically, small businesses are subject to federal and state taxes. Your business structure will determine the taxes you will need to pay and how you can pay them. For example, there are some taxes that you need to pay throughout the year instead of at the end of the tax year.
Generally, there are five types of federal taxes that a business is required to pay:
- Income tax
- Estimated tax
- Self-employment tax
- Employment taxes
- Excise tax
You will need to check the IRS website to see which federal taxes are applicable to your business type.
Your business structure also determines your state and local tax obligations, but typically all businesses need to pay income taxes and if you have employees, employment taxes. For more information about business tax requirements in Louisiana, click here.
Keep Records of All Business Expenses
It is so important to keep track of everything related to your business spending throughout the year. Many small business owners underestimate how important it is to keep accurate records of their expenditures during the year. Tracking these small expenses lets you correctly report your income and helps ensure that you receive all the deductions you are entitled to while reducing your risk for an audit.
It also serves as a great way to monitor spending habits throughout the year and can even help save money in the long run by simplifying the tax filing process. Invest in a basic accounting software if you haven’t done so already to give you peace of mind when crunching those numbers during the tax season.
Claim Your Tax Deductions
Small businesses can save a lot of money on their taxes just by claiming all available deductions. Tax deductions are used to reduce your taxable income, which can help lower the amount of tax you owe.
Some of the common small business deductions include:
- Cost of goods sold (if your business sells or resales products)
- Operational expenses, e.g., utilities, office supplies, or property rent
- Business-related insurance, e.g., property insurance, workers’ compensation coverage, or auto insurance.
- Commercial auto expenses
- Business travel expenses
- Legal or accounting fees
Know Your Tax Deadlines
As a small business owner, it’s crucial to stay on top of tax deadlines throughout the year. Not only do small business taxes need to be filed by a specific date each year, but there are numerous important tax-related deadlines that should not be overlooked.
Knowing when taxes are due, and the consequences for missing them is crucial for small business owners in order to ensure compliance and save you from missing deadlines and incurring costly fines and penalties.
The due dates will vary depending on your business structure and the tax type you file. Some small business taxes are due quarterly, while others are due annually. Review the deadlines for your federal taxes here and state taxes here.
Hire a Professional
To ensure accurate and thorough completion, we recommend hiring an accountant when filing small business taxes since doing it yourself could lead to costly errors. By working with a professional, you can rest assured that your tax return is up-to-date with the latest tax law changes, current deductions, and credits.
Your accountant can also provide advice on growing your business and preventing potential tax issues in the future. Ultimately, putting your small business taxes in the hands of a qualified professional could end up saving you time, money, and headaches down the line!
Filing taxes may not be the most fun thing to do, but it’s a necessary part of being a small business owner. Hopefully, the above guide will help make the process less daunting.
And while you’re thinking about your business’ finances, don’t forget to give our agents at TSL Insurance Group a call for all of your business insurance needs in Louisiana. With our five convenient locations in Baton Rouge, Lafayette, Abbeville, Franklin, and Lutcher, LA, we’ll ensure you and your company are protected against anything life throws your way. Contact our office nearest you today!