Nobody enjoys having to plan and prepare for business taxes. Especially for small businesses, every second spent on tax planning is a moment less spent working on business primacies. That makes it crucial for SMB owners to be well-organized and efficient while doing their tax prep.
Small businesses compute their business profit or loss for revenue taxes, then apply these figures on their individual tax returns. While many new owners might find paying taxes quite challenging, the good news is, as a small business owner, you might get a 20% Qualified Business Income deduction in addition to normal deductions.
As per the current criteria, the deductions can be received starting from 2018 to 2025. Your accountant or tax preparer can help you identify whether you qualify or not.
As an SMB owner, you’re required to pay self-employment taxes such as social security and Medicare taxes on your business’s net income. But, if your total income is $400 or below, you don’t have to pay the self-employment tax.
To help you prepare for the upcoming tax season 2021, we’ve curated a comprehensive guide for you. Follow it step-by-step to ensure that all your tax prep tasks are taken care of without running afoul with the IRS or state and local tax authorities.
1. Start by Finding Out the Deadline
April 15 is the date that usually sticks into people’s minds for when they have to file their individual tax returns. But the deadlines might vary for small business owners.
This depends on the size of your biz and the industry you’re operating in. Moreover, your tax return deadline also depends on the procedure you’ve chosen to set up your gig for legal purposes.
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Many small businesses have deadlines the same as individual tax returns, while others have completely different dates. In addition, your tax filing date might be later in the year because SMBs must carry out numerous tax-related tasks, each one having its peculiar deadlines. So it’s important to jot down all the dates to avoid slipping through any cracks.
For increased efficiency, try deploying the cutting-edge QuickBooks tax prep software that’ll help your track deadlines automatically.
2. Review Previous Quarters’ Financials
The last quarter of 2020 ended on Dec. 31. To stay ahead of the yearly tax planning and preparation regime, you must strive to create updated projections and financials by the third quarter of each year.
Recommended Read: How QuickBooks Can Power Growth in Your Small Business
SMBs across the US and Canada are using our seamless QuickBooks cloud hosting services that generate multiple financial reports within a matter of minutes. For small businesses, the key to success is making as accurate projections as possible. This not only helps them stay lucrative and stocked during slow and swamped seasons but also assists in more precise tax planning.
Since most SMBs pay their taxes on the previous year’s financials, it’s important to determine the last few quarters and compare the amounts with the current ones. This tax estimation method helps SMB owners keep track of their outlays and prepare for tax filing in April. Moreover, it also reduces the chances of potential offsets that occur between the current and projected quarters.
If you notice a significant difference between the estimated and actual amount, it means you either have to save funds for tax payments or increase income to fill in the gap.
3. Get Documentation to Qualify for Exemptions
Many small businesses enjoy lucrative tax breaks available, but this requires you to prove that your biz qualifies for them. You can do so by submitting claims to tax authorities along with the receipts of expenses incurred throughout the year.
But with some breaks, extensive evidence is mandatory. Be sure to get the right material for the right deduction, and doing it properly upfront is much more effective than requiring to get your documents modified later down the road.
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4. Gather and Analyze Your Tax Records
While all the steps in the tax preparation checklist are imperative, this one’s probably the lengthiest and the most critical. Preparing an accurate tax form requires due diligence and comprehensive analyses.
Tax preparation is a guessing game. You can’t do it with a lazy memory or without referring to old and current tax figures. Hard facts and accurate calculations are required to complete an accurate return. Start by identifying your taxpayer ID. Based on the type of your biz, you might be able to use your SSID or the Federal Employer Identification Number (FEIN).
Moving on, analyze your income statements and balance sheets. You can make this step increasingly convenient and quick by availing yourself of our cloud hosting services for QuickBooks. This software is designed to store, manage, and retrieve your business’s financials in a few clicks. In addition to your pecuniary statements, you need some tailback papers. Gather your proceeds, bank statements, credit card reports, and payroll archives to back up your work.
Let the Best QuickBooks Hosting Provider Help You with Tax Preparation
Using automated tax prep software such as QuickBooks ProSeries, you can augment your tax planning process. These tools allow easy retrieval, quick comparisons, and hassle-free analyses for accurate tax filing procedure.
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