First-Time Tax Filing for Small Business – 6 Key Tips That Will Come in Handy

Are you filing small business taxes for the first time? Tax preparation and planning are vital parts of owning a company. You’ll need to be sure it’s filed accurately and in a timely manner, which can be stressful. Along with state taxes, federal taxes are another area you’ll need to focus on.

6 Tips For Safe Tax Preparation and Planning for SMBs

Not only will you want to make sure your taxes are completed properly and on time, but you’ll also certainly want to maximize your tax return and claim all your deductions as well. Here are suggestions to follow to help ensure your first time filing taxes is successful:

1. Cash vs. Accrual Basis

Small business tax services recommend that one of the first steps you take is to analyze your business situation when deciding if you want to prepare your tax return on an accrual or cash basis. Under the accrual basis, your income is recognized by being effective when it’s earned and expenses are recognized when they are incurred. Under the cash basis, however, income becomes effective when it’s collected, and expenses are recognized as they are actually paid. If you have a small business accountant, he or she will most likely go with a cash basis if your new business has more unpaid expenses than paid ones. Later, as business begins to pick up, the accrual basis may work best for you.

2. Depreciation Method

For optimized tax preparation and planning, you’ll need to choose a depreciation method. In the first year, the Internal Revenue Service (IRS) will allow up to $1,040,000 in deductions for furniture and equipment. You’ll be able to elect if you want to take the deductions all at once or to write the cost over five or seven years. There are advantages to both ways of figuring out the deductions. A small business tax service can help you make the most advantageous choice, but with some research and analysis, you can figure it out on your own if you want to do so.

3. Home Office Deduction

In your tax preparation and planning, you’ll want to deduct for your home office if you are a sole proprietor. That is when you deduct a portion of your residence if it is used in conducting business. The area must be used only for business when you claim it, however. It is figured by the square footage. You cannot take this deduction if you are claiming a loss through. But, if you do claim it, you are also able to deduct such things as landscaping and maintenance as well.

4. Non-Employee Compensation

Non-employee compensation is an area that many small business owners forget about or don’t completely understand. This deduction comes from independent contractors you’ve paid during the tax year. To set it up, you give any contract for whom you pay $600 or more a 1099-NEC rather than a W-2 form, as you do pay to your regular employees. Failure to report wages paid to an independent contractor gives you a false gross income, which means you’ll owe more in taxes.

5. Automobile Expenses

Be sure to file your automobile expenses because there will be a deduction. Keeping an auto log is highly recommended by most accountants who work for small business companies. Record where and when the travel took place, who was driving, and if there was business conducted on the trip. Each vehicle should be kept separately as it will be filed separately.

6. Self-Employment

You’ll need to prepare for paying self-employment taxes, as it will be a significant part of your federal taxes for small businesses. It includes Social Security and Medicare tax, which is part of your total taxes. Monitor your available cash flow to ensure the amount covers self-employment tax.

Hire an Expert Small Business Accountant for Reducing Your Business Taxes

If the points above and the process of filing federal taxes for small businesses is overwhelming to you, you can get help with your tax preparation and planning by hiring a small business tax service.