If your small business just wrapped up its first year of operation, you’re probably asking yourself “What do I need for my taxes?” It’s a question just about everyone in your situation ponders, but, unfortunately, there is no blanket answer that makes sense for everyone. Rather, the answer depends on all kinds of factors, making the process intimidating for many of us.
At Accounting Boot Camp, we understand how complex and daunting tax season can be. Here are five steps you need to take during tax season.
‘What Do I Need For My Taxes?’ Step 1: You Need All Relevant Information, and It Needs to be Organized
Before you get to your actual tax forms, and before you start reporting your income, you need to get all of your company’s information together, and you need to organize it properly. Gather your business earnings, your expenses, your liabilities, your general records—any data you may consider important.
If you are well-versed in Microsoft Excel, inputting this information into a spreadsheet is a great way to get organized and keep track of every transaction you have made throughout the year. Doing so makes it much easier to use tax preparation software.
Regardless of your methods, maintaining proper accounting records throughout the year will significantly reduce how much time you spend doing your company’s taxes. And, ultimately, it will help maximize your deductions.
‘What Do I Need For My Taxes?’ Step 2: You Need the Right Tax Forms
The tax form you use to report your earnings will depend on how your business operates. In the United States, if you run your company by yourself as a sole proprietor or as a single-member limited liability company, you will report all of your business income and expenses on a Schedule C, which will be attached to your individual income tax return form.
According to the IRS, you should use the Schedule C to record business activity if “your primary purpose for engaging in the activity is for income or profit, and you are involved in the activity with continuity and regularity.”
However, if your business is considered a partnership or a multi-member LLC, a Schedule C form will not suffice. You’ll need to fill out Form 1120, which is used by corporations to report their income, gains, losses, deductions, and credits, and to figure out their income tax liability.
‘What Do I Need For My Taxes?’ Step 3: You Need to Know How to Fill Out the Forms Correctly
If you are the sole proprietor of your company or operate a single-member LLC, you can find a Schedule C on the IRS website or through your tax preparation software. Filling out a Schedule C is rather straightforward, and it is only two pages long. To complete it, you must list all of the expenses you claim, then subtract those expenses from all your business earnings.
Finally, you’ll have your net profit or loss. That number will be included in your personal income tax form.
If you need to use a Form 1120, the process is somewhat similar. You’ll still need to break down your taxable business income by listing the expenses you claim and your business earnings. That said, there are some key differences. For one, you’ll need to include more details that aren’t needed on Schedule Cs. And you’ll have to do so on a sheet that is separate from your individual tax form.
‘What Do I Need For My Taxes?’ Step 4: You Need to Get Tax Forms to Your Employees and Contractors
It's crucial to mail the appropriate tax forms to all of your employees and contract workers. Your employees will need to receive W2 forms; your contractors will need 1099s. Before doing so, make sure all of your employees’ names and social security numbers are verified with the Social Security Administration. (You can do so by clicking here.)
All W-2 forms need to be filed with the SSA along with a W-3 form, also known as the Transmittal of Wage and Tax Statements. It is a transmittal form used to break down the total earnings, social security wages, Medicare wages, and withholding for all of your employees.
‘What Do I Need For My Taxes?’ Step 5: You Need to Always Be Aware of Deadlines
Each year, your employees and contractors will need to receive their W-2 and 1099s forms by January 31st. The other deadlines change slightly year-to-year. Always monitor the IRS website or financial news outlets to make sure you know when everything needs to be signed, sealed, and delivered.
If you feel like you could use a refresher course in the basics of accounting, be sure to check out our fast, fun and education series, Virgil Whitelaw: Forensic Accountant in Space.