It’s never too early to prepare for tax season. Many aspects of tax planning come down to the small, consistent efforts you’ve made over the year to keep things organized. Small business owners without good financial hygiene may get nervous when tax season rolls around, but the process doesn’t have to be stressful.
Use this small business tax preparation checklist as a reference as you begin thinking about the upcoming tax season and what it means for your business.
1. Learn the deadlines
The first step is easy. What are the tax filing deadlines for small businesses for the 2019 tax season? This will depend on your business structure, so make sure you know what’s expected of you.
Here are a few common deadlines to note:
- January 31, 2020: Deadline to distribute W-2/1099-MISC forms
- March 15, 2020: Tax deadline for S-Corporations and partnerships
- April 15, 2020: Tax Day; deadline for sole proprietorships, single-member LLCs and C-Corporations
- October 15, 2020: Deadline for extension returns
2. Make a list of all relevant tax forms
With a timetable in mind, start collecting the forms you’ll be filing. Again, refer to your business classification and hiring practices to help determine which forms the IRS will need.
- Individual return forms Form 1040, 1040-A, or 1040-EZ
- Schedule C for profit/loss reporting
- Companies with employees need W-2s, 1099-MISC for independent contractors
- Sole proprietors attach Schedule C
- C-corporations attach Form 1120
- S-corporations attach Form 1120-S
- Partnerships attach Form 1065 and Schedule K-1
This is by no means an exhaustive list, so make sure you verify your company’s needs with your accountant.
3. Gather your files
Hopefully, you or your bookkeepers kept good records over the past year. You’ll need records from 2019, including end of year balance sheet, income statement, and payroll reports. Your bookkeepers should have these reports set up for simple generation in your accounting software, so this shouldn’t take long. Make sure you have everything the IRS will need:
- Income/expenditure statements
- Bank/credit statements
- Accounting documents, gross receipts, sales records
- Depreciation schedules
- Previous years’ returns, if necessary
These records will be particularly important for small business owners claiming extensive deductions, but it’s good practice for any company.
4. Check for personal/business expensing inconsistencies
A common pitfall for small business owners is overlap in business/personal expenses. It’s common for owners to dip into personal accounts to cover business expenses, and conversely, it’s possible to tap into business funds to cover personal expenses. But if you do this, you’ll need to make sure everything stays balanced. Review your account and make a note of any discrepancies.
5. Corral your 1099s
More likely than not, you’ll be issuing 1099s and receiving 1099s during the tax season. Make sure you understand these documents. Service businesses typically receive many of these documents from customers—and send out many in turn to their own vendors. Keep track of these, as they’re important income verification tools for the IRS.
6. Learn about deduction opportunities
This is one area where an outsourced bookkeeper or accountant can pay real dividends. Are you properly accounting for business deductions? If you’ve purchased food, equipment, or travel for the sake of your company, these expenses are likely deductible. But look beyond the obvious and see where else you might be owed.
For example, those who use their home exclusively for work can deduct home office expenses, and those who use a personal vehicle for work can deduct certain aspects of their business mileage. These deductions add up and rely on thorough, defensible records, so make sure you have the data to back up your requests.
7. Avoid overpaying
If you’ve been making estimated income tax payments or payroll deposits throughout the year, make sure you balance these funds against your total income tax liability. Failing to do so will mean overpaying—a simple error that’s easy to avoid with a little planning.
8. Don’t rule out an extension
Extensions exist for a reason. If you’ve put off your small business tax planning, the above steps might take you a bit longer than you thought. An extension will give you until the fall to get your return submitted. But keep in mind that you’ll still need to pay your taxes on time, even with a legitimate extension.
Your Small Business Tax Checklist
Tax planning for small businesses doesn’t need to be complicated, but as your business grows, so will your needs. Most companies find that they need the skills of a professional accountant at some point in their growth, and even if you haven’t reached that point yet, it might be time to start thinking about it.
After all, your tax strategy should be all about long-term planning: both in what you do today, and how those choices will affect your company tomorrow.
Download our tip sheet for insights into how you can start saving on taxes immediately.
