Business owners wear several hats a day. They have to design their services, market themselves, manage a small team, handle salaries and payments, and much more.
So, it’s no surprise that when it comes around to doing your corporate taxes, you might find yourself overwhelmed. To remain in good standing with your state and avoid unnecessary fees, it’s essential to keep on top of your regular accounting practices and taxes throughout the year.
There are several things you can do to help streamline your small business taxes and filling process. We have outlined best practices for business tax planning to help ensure you’re ready for your tax return and can get a jumpstart on planning for future years. Let’s dive in!
Understand Which Business Taxes Apply to You
Every business is required to pay certain taxes to the IRS and state tax authorities. However, your tax liability depends on a variety of factors specific to your business, services, workforce size, and income.
As you prepare to pay taxes, it’s important to know your business’ tax burden and what financial information you need to keep track of during the year to prepare your filing accurately.
Income tax is the tax paid on the profits your business makes and is paid both at the federal and state level.
The business income tax varies from state to state and could even vary from county to county, so check the local tax codes to verify your tax rate and payment frequency.
If your business is a C-corp, taxes will be based on the net income of your business and taxed at a flat rate of 21%.
However, an S-Corp or sole proprietorship will pay taxes on an individual level and report income on your individual tax return.
The estimated tax is due on April 15, June 15, September 15, and January 15 if you are estimated to owe more than $1,000 (or more than $500 if your business is a C-Corp).
If you personally earn more than $400 from business activities, self-employment tax has to be reported as income and taxed at the self-employment rate of 15.3%.
If you have employees, you need to pay payroll taxes. This includes:
- Social Security and Medicare taxes
- Federal and State income tax withholding
- Federal unemployment tax
You will need to gather and submit this information at the state and/or federal level, and make payments accordingly.
Your business may have to pay excise taxes if you operate in one of the following sectors:
- Communication services
- Sale of liquor or cigarettes
- Sale of fuel
- Air transportation
- Sale of heavy trucks, tractors, or trailers
- Wagering or sale of lottery tickets
If you operate in any of the above industries, be sure to do some research to see if excise taxes apply to you.
Find the Right Tax Forms
Each business structure comes with specific tax forms to report profits, losses, deductions, and credits to the IRS. The most common forms include:
- Schedule C: Report income as a sole proprietor alongside Form 1040
- 1099-MISC: Use this form to report self-employed income if you are a business owner or an independent contractor
- Form 1120: Report income for a C Corporation
- Form 1065: Information return if you’re the owner of a partnership
- Form 720: Used to report excise taxes for your business
Finding and filling out the right forms can be complex and time-consuming. If you’re unsure about this process, our tax professionals and accountants are here to help.
Plan the Tax Year Ahead of Time
Once you’ve identified which forms you are liable to fill out, create a tax calendar to keep you on track throughout the year.
Each form has its own deadline and set of requirements, and there are four estimated tax deadlines throughout the year. Unfortunately, it’s easy to lose track of these important dates to avoid fines and penalties.
Make a note of all tax dates in a calendar so you can set up notifications ahead of time. This allows you to track the responsibilities coming up.
Important Dates Include:
January 31: Deadline to send W-2 to employees and 1099-MISCs to contractors. You need to submit copies of these tax documents to the IRS. February 28: Deadline for filing of 1099 or 1096 on paper.
March 15: File returns for Partnerships, S-corps, or multi-member LLCs
April 1: Deadline for filing 1099 or 1096 electronically
April 15: First estimated tax
June 15: Second estimated tax
September 15: Third estimated tax
January 15: Final estimated tax
Keep Your Tax Documentation Organized
Once you know which forms to file and when to return them, it’s time to organize your tax preparation checklist. Since each form comes with its own set of requirements, it’s important to know the required documentation to complete your filing.
To prepare for the next tax year, keep the following documents organized and ready:
- Your Federal Tax ID number
- Your Social Security Number
- Previous tax returns (up to 3 years for both state and federal)
You will also need to record your income and expenses for your business throughout the year and maintain documents like:
- Accounting journals and ledgers
- Financial statements (balance sheets, income statements)
- Transactional support documents (including invoices, bank deposit slips, credit card statements, vehicle, and mileage logs, etc.)
To claim back expenses, keep receipts grouped into these categories:
- Supplies (general and office)
- Recurring operational costs like rent, utilities, and subscription services
- Business entertainment and travel expenses
- Marketing and advertising costs
- Professional fees for attorneys, accountants, consultants, etc.
- Insurance policy details (individual and group plan documents, company vehicle insurance, etc.)
- Equipment and assets, with depreciation schedules
These are just a few examples. For a more comprehensive list, reach out to your personal tax accountant.
What Tax Savings Should My Business Consider?
As a business owner, it’s important to consider business deductions and how they can impact your tax liability each year.
Take the time to review the deductions available to business owners and talk with your accountant about how you can take advantage of them. Here are a few things to consider:
- Do I understand the tax laws affecting auto usage?
- Do I understand the rules for meals and entertainment?
- When should I purchase new equipment and how can that help my taxes?
- Should I consider setting up a retirement plan? How would that benefit me?
- How do I provide benefits for my employees and will that help my tax outcome?
- Have I taken advantage of all the stimulus and COVID-related assistance, such as employee retention credits (ERCs)?
2021 Tax Deductions for Businesses
Did you know that in an effort to stimulate business for restaurants, businesses can claim a 100% deduction for certain business meals?
For additional insights like this, reach out to one of our tax professionals who can keep you up-to-date on changing tax requirements and deduction opportunities as legislation changes.
Hiring a Tax Accountant for Your Business
For many business owners, their tax accountant is someone they communicate with a few times a year, typically right around tax season. But, at SME, our team of experienced tax and accounting professionals work to deliver value for Augusta, GA businesses throughout the year.
Many clients never think of calling their tax accountant throughout year, but the ones that do can benefit greatly. Your accountant can assist you with making important decisions with your unusual or irregular events including:
The sale of property
- How do I plan for taxes related to the gain?
- Should I consider a like kind exchange?
- If I provide owner financing for the buyer, will that change the outcome for tax purposes?
Selling a business
- How can I structure the sale to take the best advantage of the tax laws?
- Tax laws are changing, what is the best timing for the sale?
- How does a sale affect taxes when I have a partner?
A change in employment can create issues
- Is my withholding adequate?
- Do I need to make sure I don’t overcontribute to a 401k?
How will the advance child tax credit payments affect my 2021 tax refund?
Reach Out to an Accountant Today for Help with Small Business Tax Planning
As a business owner, bookkeeper, or staff accountant, you have a lot on your plate – managing your 2021 taxes alongside everything else you do is no easy feat.
That’s why we recommend reaching out to one of our accountants today to get a jump start on your business tax planning for your annual return.
A professional tax consultant can help you prepare the necessary documentation and put a system in place to make it easier to record receipts, invoices, payments, and more.
SME provides accounting and tax planning services so you can go into the new tax year better prepared. For more info, contact us today!