Tax season can be a challenging time for small business owners. Staying organized and understanding the key steps can make the process smoother and more efficient. Here’s a checklist to help you prepare for the 2024 tax season.
1. Understand Different Types of Business Taxes
I know that around this time of year, most businesses are focused on preparing for annual income tax filing, but it’s important to know the various taxes your business may be responsible for, such as income taxes, estimated taxes, self-employment taxes, and employment taxes. The type and amount of tax will depend on your business structure, whether it’s a sole proprietorship, partnership, S corporation, or C corporation.
2. Know Your Tax Forms
Depending on your business structure, you’ll need specific forms to report profits, losses, deductions, and credits. For example, sole proprietors use Schedule C, C Corporations file Form 1120, Partnerships use Form 1065, and S Corporations file Form 1120S.
3. Organize Your Records
Start by gathering all necessary documents such as income statements, expense receipts, payroll records, bank statements, mileage records, loan and purchase agreements, and estimated tax payments. This step is crucial to avoid potential errors and assess the financial health of your business. In addition to the normal business records listed above, it’s important that you also provide your accountants with any tax forms you might receive from other businesses, such as:
- Form W-2: Wage & Tax Statement – if you are traditionally employed whether through your own business or with another, you should receive a form detailing what you’ve been paid for the year.
- Form 1099-MISC or 1099-NEC: Miscellaneous Income – usually received from businesses that you’ve subcontracted with, or done gig-work for.
- Form 1099-G: Certain Government Payments – if you filed for and received unemployment benefits, taxable grants, or state/local tax refunds.
- Form 1099-K: Payment Card & Third-Party Network Transactions – normally received from the merchant who processes your customer payments and deposits
- Form 1099-DIV: Dividends & Distributions – normally received from any stock or investment portfolio managers
4. Analyze Your Financial Statements
Review your financial statements thoroughly to ensure accuracy. Use tools like QuickBooks to organize your business transactions and calculate your income and expenses. If you’re not currently tracking your revenues and expenses, we highly encourage you to start! Not only are up-to-date books useful for annual tax filing, but they are also an excellent source when making plans for business growth. We can help you set up a chart of accounts, and get your financial accounts connected as part of our Quickbooks Online setup and conversion services.
5. List Your Tax Deductions and Credits
Identify potential deductions and credits to reduce your tax liability. Common deductions include home office expenses, vehicle expenses, salaries and wages, rent or lease payments, depreciation, professional fees, and interest. Credits can include the Work Opportunity Tax Credit, Small Business Health Care Tax Credit, R&D Tax Credit, and others. Maintain clear separation of business and personal finances to simplify tax calculations and avoid confusion.
6. Create a Tax Calendar
Keep track of all the important tax dates for 2024, including quarterly estimated tax payments and filing deadlines for different business structures. For instance, the deadline for partnerships, S corporations, and multi-member LLCs is March 15, 2024, while single-member LLCs, sole proprietors, and C corporations must file by April 18, 2024.
7. Consult a Professional
We’re probably a little biased, but we believe that there are some small businesses who REQUIRE professional bookkeeping and tax planning in order to stay competitive and to make sure they are taking advantage of available tax deductions and credits. Consider hiring a tax professional to guide you through the process, especially if you’re unclear about certain aspects of tax filing. They can provide valuable insights, help maximize deductions and credits, and ensure compliance with tax laws. And if your books aren’t quite in shape yet, we invite you to reach out – Berryhill Consulting provides one-time tax preparation services to make sure your books are up to date and ready for tax filing. Contact us for more information on current discounts and promotions!