When it comes to taxes for small businesses, the questions often come fast and furious. “How much money will I owe? Can I reduce this amount? What can I do now to make next year’s taxes easier?”
Every small business has unique financial details, so there are no universal answers. However, what is guaranteed is that you need to invest time in your taxes if you don’t want them to divest too much money from you.
There are two primary questions to consider about your business’ tax health. First, are you actively looking for strategies to legally lower your taxable income? Second, are you consistently making time to implement these efforts? If you answered ‘yes’ to both questions, then keep up the good work. If you answered ‘no’, it’s time to get into gear. Entering tax season unprepared hurts your bottom line and potentially exposes you to other issues stemming from your lack of preparation.
Get a jumpstart with the checklist below. Then dive deeper into each topic by clicking through to each chapter of the guide.
Get Started With Our Small Business Tax Preparation Checklist
Beat overwhelm and understand your taxes with our easy-to-follow small business tax preparation checklist. Get organized fast by checking off key steps like the ones outlined below:
1. Understand Your Business Tax Rate
Your business tax rate depends on the type of business you have. Corporations known as C-corporations pay the corporate business tax rate, which is 21%. Other businesses such as sole proprietorships, S-corporations, and partnerships all pass through entities and are taxed at the personal tax rate of the owner, typically somewhere between 10% and 37%. Limited Liability Companies (LLCs) either function as a C-corporation or a pass through entity, so it’s important to know how you are filing.
Go to the full chapter on business tax rates.
2. Match and Categorize Transactions
Importing your income and transaction reports is just the first step. Your taxable income is affected by how you recognize your income and expenses.
Review your transaction records to make sure they are properly categorized and that there are no duplicates between your imported and manual records. By matching and categorizing your transactions, you’ll have an organized view of where money was earned and spent in your business.
Go to the full chapter on business expense categories.
3. Follow Up on Overdue Invoices
Tax calculations rely on accurate accounts of your business income and assets. Send out reminders to collect on outstanding income for the year.
Pro Tip: Any invoice overdue by 90 days that you are unable to collect on is considered “bad debt” and may be eligible to be a tax write-off. Find more savings like these with the right small business tax preparation software.
4. Reconcile Bank Accounts
Errors in your books can have a huge impact on your taxes. You need a reconciled record of your business income and expenditure for your tax return.
Thankfully, bank statements are reliably accurate, so checking your books against your bank accounts can help you spot mistakes in your accounting, catch any wrongful payments or suspicious activity, and identify any tax-deductible expenses.
5. Generate Your 1099 Report
Do you work with independent contractors? You will need to provide a 1099 form to any contractors that you’ve paid $600 or more in the past year. Review your list of vendors that are eligible for a 1099 form to generate a report that is compatible with most online filing services.
Go to the full chapter on how to prepare Form 1099.
6. Prepare Your List of Depreciable Assets
Eligible expenses can be identified as depreciable assets, which is a tax strategy that allows you to deduct a portion of the lost value on your taxes each year. Create a list of expenses for your CPA to identify as depreciable assets when you file your taxes.
Go to the full chapter on tax depreciation.
7. See Which Tax Credits You Qualify For
A tax credit will decrease the total amount you owe on your total tax bill. There are many tax credits available to qualifying small businesses, including the 30 listed in this chapter.
Go to the full chapter on tax credits.
8. See What Expenses You Can Deduct
Before you file the tax return, it is key that you determine eligibility for tax deductions, as there may be many. Certain business expenses qualify for a tax deduction and will reduce your total taxable income.
Go to the full chapter on tax deductions.
9. Gather the Correct Business Tax Return Forms
The correct tax form to gather will be based on whether you are doing business as a Sole Proprietorship, Partnership, C-corporation, S-corporation, or Limited Liability Company.
Go to the full chapter on business tax forms.
10. File Quarterly Taxes
Freelancers, independent contractors, or single business owners who make over $1,000 annually are required to file quarterly taxes. Taxes are due April 18th, 2023, June 15th, 2023, September 15th, 2023 and January 16th, 2024. There are a few ways to file including by phone, online, via app, or by cash or check.
Go to the full chapter on filing quarterly taxes.
11. Hire a Tax Preparer
Have you hired a good financial adviser? At the very minimum, you should have a trusted accountant help prepare your taxes each year. The value increases exponentially when you enlist an adviser to work with you throughout the year, guiding you through complex tax laws and helping you maximize your profits.
Go to the full chapter on hiring a tax preparer.
12. Prepare Your Documents
Staying organized and on top of what documents you will need is important when it is time to file your taxes. The documents you must gather for a small business are Financial Statements, Tax Forms, Payroll Records, Business Expenses, Depreciation Schedule, Inventory Records (for companies that sell physical products), Sales and Expense Reports, and State and Local Tax Forms. Keeping everything in an accordion file organizer is highly recommended.
Go to the full chapter on what your accountant needs.