Friday, April 5, 2013
Every small business must deal with the unpleasant task of preparing and filing their taxes each year. While the process is easier than for large corporations, it can still be more challenging than your personal taxes and confusing. If you’re new to this process or need a refresher, here are the basic steps to getting those taxes in.
The first thing you need to do is obtain an Employer Identification Number online from the IRS. While it is not required for every business to have one for tax filings, other companies may need it for doing business with you, anyway. Then you will need to gather all your sales receipts, invoices, cancelled checks, deposit slips, and other documents from the year. Hopefully, you have saved copies of these and kept accurate records, either electronically, on paper, or both. If the IRS asks you to explain anything on your tax return, these items will be valuable proof that you need.
hen you need to be sure there is a bookkeeping and accounting system in place that functions well to record all income and expenses. It does not have to be complex, but it will give you something to look back into if you are asked for further information. Finally, you may have already known this, but every new employee needs to complete and sign a Form W-4. This determines how much income to withhold for taxes before they start work. You may want to keep these tax withholdings in a separate account so you can use that to pay the necessary employment taxes.
To file your taxes, first gather and fill out all the forms you need. Schedule C or C-EZ of Form 1040 is probably what you need. This is called “sole proprietor income taxes”. Schedule SE of Form 1040 is for self-employment income. Finally, Form 1065 is for partnership income taxes. The next step is using the IRS’ E-File system online, unless your company is required to file by mail. Filing online is faster and easier. The final step is to send every employee a W-2 form. You will also need to send copies to the Social Security Administration each year. Form 1099 goes to contractors.
In a nutshell, that’s about it. For specific tax write offs, deductions, and questions, you can explore the IRS website or consult with a tax professional. Since tax season begins in January, don’t put it off until the second week of April. Business taxes take considerably longer to process on your end and to get back from the IRS, so if you want your refund soon, get them done. There should be no need for tax extensions, although they are available for a fee. Take your time and be accurate to avoid an audit. Make it happen.
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