One of the most time consuming and complicated parts of running a business is having to calculate taxes. It would be best to make tax planning a year round activity. This will help deal with tax planning and filing in a more systematic manner. The first step to calculating tax would be to gain knowledge of the current tax code. Whether you are calculating taxes for your business by yourself or have outsourced it to an external party. Having this knowledge would help avoid any missteps in the process and help you plan ahead. You will not have to deal with any IRS audits resulting because of noncomplianceor end up having to pay IRS BACK TAXES which may affect your business adversely. Keeping this in mind here are a few steps that you can follow and start calculating taxes for your small business.
- Tax Allowable Deductions and Tax Credits
As the owner of a business, you are entitled to certain deductions that you can make from your income. For example stationery supplies for office use, costs related to business startup, regular maintenance expenditure etc. This provides a tax relief by not having to pay taxes for these expenses.
Where tax deductions are an allowable deduction from your income. Tax Credits reduce the total amount of tax liability owed to the government. Some of the tax credits for small corporations include small employer pension plan startup cost credit, work opportunity/welfare-to-work expenses credit and the rehabilitation, energy and reforestations investments credit etc.
While deductions are more popular with small business owners due to the immense amount of deductions available. It is up to you to utilize the deductions or credits depending on which one benefits your business more based on your annual income.
- Maintaining Tax Records
Keeping up-to-date tax records is not just helpful. It is a legal requirement as well. You can save immense time and energy by ditching the redundant manual method. Make the most of the ease of digitized record keeping provided by technology. As the burden of providing proof of your tax documentation falls on you. The IRS advises that you keep everything for at least 3 years. The records that you would want to hang on to include receipts, invoices, bank and credit card statements, proof of payments, previous tax returns etc.
- Filing a Tax Return
Whether you are able to pay in full at the time or not. It is a rational thing to do to file your tax returns on time to avoid penalties. It will help you avoid having to pay IRS BACK TAXES which accumulate fines and penalties.When filing a tax return, first you need to make sure that you have all the necessary documents ready. Then to file your return correctly you must use the correct form. The tax form depends on the type of your enterprise. For example a Schedule C or a 1099- MISC is used if you are a sole trader.
The due date for filing a tax return for a small business and for filing income tax returns is the same. The due date is April 15th, if it falls on a holiday then the next working day becomes the due date. Make sure that you make payments on time to avoid any IRS BACK TAXES due to late payment or unpaid taxes for the year. You might not even have the means to pay them as they accumulate fines and penalties due to late payments.
Calculating and filing tax returns is a complicated process. To make sure that you avoid mistakes or penalties. It is better to hire professional help to do the job for you.