It's that time of year when business owners start thinking about their taxes. If this was your first year in business, and you've never owned a business before, the idea of filing business taxes might be daunting. However, there are ways you can prepare now so that you have what you need to file your taxes correctly and deliver them on time. Learn more about what documents you'll need to get started.
Preparing a financial statement includes several different aspects of your business's financial records. First, you can create a balance sheet that presents an up-to-date snapshot of the company's holdings, including assets and liabilities. If your company is a corporation, you may also want to include current shareholder equity. Next, create an income sheet comprised of the company's net income and losses, which can include revenue and gains. Then, a cash flow sheet is prepared to show any cash transactions related to financial activities like operations and investments. These elements combined should provide you with a complete financial statement you can present to an accountant or use to file business taxes yourself.
Employee Tax Documents
If you have employees, you must be sure to create the appropriate tax documents so your employees may also file their taxes. The most common type of employee tax document is a Wage and Tax Statement. This form is required by law to be sent out by January 31st each year. In addition, your company must file this form with the Social Security Administration by February. Also called a W2, this form is used when your employees file their personal taxes to report wages and other important taxable information. As the employers you're responsible for created the w2 forms for your employees. Thankfully, there are online services that can help you prepare them.
Review of Assets
Businesses must also take stock of their assets so they may be reported to the IRS. Basic assets can include products sold, like inventory. However, capital assets are things like equipment, buildings, land or vehicles. A business must also report the buying and selling of intangible assets, like trademarks, patents or copyrights. Whether tangible or intangible, these examples are considered capital assets. Calculating capital assets can result in a loss or a gain. For example, if your company's asset has a lower selling price than its cost, that may be considered a loss. However, if the selling price is higher, that could be considered a gain.
Home Office Expenses
If you use part of your home as an office, you may also want to include calculations for home office expenses. Unfortunately, proving home office expenses requires more than just keeping receipts. There are two major requirements to qualify for home office deductions. First, your home office must be the main place of business, and second, you have to use that part of your home for that business's purposes only. The next step is to divide the total square footage of your home by the portion of your home you want to deduct. Then, multiply your overall expenses for the home by the percentage of your home office.
Understanding which tax forms to include with your return is another important aspect of filing your business taxes. There are many different business classifications that would determine which forms you'll need. Sole proprietors may need a 1040, 1040-SE, Schedule C or Schedule C-EZ. Partnerships should look into forms 1065, 941, 940 and 943. For S Corporations, check forms 1120-S, 940, 941, 943 and Schedule K-1. LLCs with single members often file forms 1040, Schedule E, Schedule C and Schedule F.
Leave It To Professionals
If you're still confused by the process, consider going to an accountant who can help you with your first year business tax returns.
Publish Date: January 17, 2020 10:38 PM