Unless you are an accountant, or you have a personal accountant from Guidant Financial or similar, filing taxes is one of the worst tasks you have to take on throughout the year. It is a time-consuming, tedious endeavor. However, if you are an entrepreneur, you better get used to it now. When you incorporate a business and become a first-time business owner, you will be responsible for businesses taxes as well as personal taxes. You probably will not have the capital necessary to hire a business accountant to take care of your tax returns for you. Thankfully, you can learn how to file business taxes online with posts like these. Find out all you need to know to file a tax return for your new business venture when you are ready below.
1. Get The Right Form
Depending on what type of business structure you decide to form, you will have to fill out a different tax return form. If you decide to own a sole proprietorship, you will need to attach the Schedule C form to your personal income tax return. This is also true if you operate an LLC that functions as a sole proprietorship. If you decide to form a corporation or an LLC that is treated as one, you will be required to be prepare a separate corporate tax return. This will require the use of the Form 1120, or Form 1120S for S Corporations in particular. Remember to only fill out the form that is appropriate for reporting business earnings and deductible expenses at your type of business structure.
2. Decide Cash Or Accrual
There are two types of accounting methods for tracking business expenses and income that you will need to decide between. You can choose to prepare business tax returns using cash accounting or accrual accounting for fixed expenses as well as variable ones. With cash tracking, you will need to recognize income when it is collected and expenses when they are paid out. Using the accrual accounting method, on the other hand, you will need to recognize income right after earning it and expenses right when they are incurred. Either of these business accounting methods can be used for the reporting required for your tax return. Just pick whichever you prefer.
3. What Expenses Are Deductible?
Once you know how to track business expenses with one of those cash flow management strategies above, you will need to find out what business expenses are tax deductible. These are the only ones that are worth reporting on your tax return each year. According to IRS standards, business expenses are deductible only when they are ordinary and necessary. That means that there are certain expenses that you will definitely be able to report. Equipment purchases, auto expenses, travel expenses, business meals and entertainment expenses are all possible deductions you can opt to report. Keep this in mind so that you can properly track business expenses year-round before tax return season rolls around.
4. Know When Taxes Are Due
Filing business taxes is different than filing taxes as an individual. However, the tax return due dates are not different. Business tax returns are due on April 15th, just like personal tax returns. If that date happens to fall on a weekend of any given year, the date will be moved to the next business day thereafter. Although this is not difficult to remember, it is important to note, just in case entrepreneurs like yourself are worried they may have to file taxes quarterly. Remember to submit your business tax return by April 15th when you are filing your personal one too.
5. Amend Your Tax Return
If you make a mistake on your tax return, do not panic. As a business owner, you can file an amended tax return if you notice any errors that affect returns or tax liability for your business. This process can be done up to three years after filing your business taxes. Again, you will need different forms for different business organizational structures. Sole proprietors or LLCs that act as them can use Form 1040X. Corporations must use Form 1120X, except for S corporations who are required to use Form 1120S. Partnerships or other multiple member LLCs require the use of Form 1065X for tax return amendments. Make sure you know this information, as you are highly likely to make mistakes filing business tax returns for the first time.
If you are an entrepreneur who is right on the cusp of opening your first business, congratulations! Now is the best time to learn up on business tax law and what is required of your for filing taxes as a business owner. The steps above will enable you to complete the business accounting necessary to file a business tax return for the first time. Remember if you make a mistake, you can always fix it by filing an amended tax return using the correct form for your business. Follow this step-by-step guide to business taxes above to start preparing to become the business accountant you never dreamed you would be.
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