How to Do Your Small Business Taxes for the First Time

If you have started a small business within the last year, you have likely experienced a wide variety of new challenges. Despite these challenges, your business has hopefully been able to grow and move closer to achieving your long-term goals. But in order for your business to continue flourishing, you will need to inevitably experience what many new businesses fear the most: paying your taxes for the first time.

The tax code in the United States can be incredibly complicated and it may be a good idea to consult with an accountant or a tax attorney. However, fortunately doing your taxes is something that is easier as time goes on. Once you find a system that works for you, you won’t need to start from scratch with each new year.

Decide Who Will Be Doing Your Taxes

No matter kind of business you may own, you will need to be pay taxes eventually. Instead of procrastinating and waiting until taxes are due to begin the process, it is a good idea to plan as far in advance as you feasibly can. Naturally, the first decision you will need to make is who will be doing your taxes.

  • Doing your taxes yourself is the most affordable method, though it can be rather stressful and inefficient. Generally, if you plan on doing your taxes yourself, you will want to spend some time familiarizing with the process, terminology, and necessary details well before tax season arrives.
  • Hiring an accountant can sometimes be rather expensive, but if your finances are relatively simple, finding someone who works on a per hour basis may be worth the investment. A good accountant may also be able to actually save you money because of their familiarity with deductibles and tax credits that are often overlooked.
  • Using a tax software such as TurboTax or QuickBooks can often offer a reasonable blend of frugally doing your taxes yourself and having the expertise of someone who has done them before. Some programs are even free to use, though this may not be the case depending on the size and scope of your business.

When searching for an accountant, it is generally a good idea to read reviews, ask for referrals from other small business owners you may know, and make an effort to find someone who specializes in your specific industry.

Keep Track of Your Expenses and Necessary Paperwork

Ideally, as a business owner, you will have a strong awareness of your business’ ongoing sources of revenue and expenses at all times. However, many business owners allow for a lot of these details to slip through the cracks and may find themselves unsure of their financial position come tax season.

Though it can sometimes seem like a rather tedious task, it is important to keep a daily ledger that reflects the specific financial position of your business. If money is spent, acquired, or moved between various accounts, your ledger should immediately reflect this. The few minutes it requires to record your financial activities will make the process of paying your taxes significantly easier. This will make it much easier for you to identify opportunities where tax credits and deductibles may apply.

Doing your taxes as a small business owner will also require a significant amount of paperwork. Though many of the common tax forms you will encounter may seem overwhelming at first, they can often be easily navigated if you are able to familiarize yourself with the jargon and pay attention to all details. The forms that you will need to fill out will depend on the size, structure, purpose (nonprofit versus for-profit) and general nature of your business.

If your business has employees or uses the services of freelancers or independent contractors, you will need to be sure to let the IRS know. In-house employees will need to be reported using a W-2 form, which should have been initially filed immediately after they began officially working for you. Independent contractors and freelancers will require a Form 1099, which can conveniently be filed on a yearly basis.

In general, larger businesses will need to fill out a wider range of tax forms than smaller businesses. However, there are some forms that will commonly be filed by businesses of all sizes.

  • Income Tax forms are required to be filed by all businesses types other than partnerships (who instead file an information return). This will likely involve the use of Form 1040, Form 1120, or Form 1120-S. The IRS may request that you pay your income taxes every quarter rather than at the end of the year.
  • If you are self-employed, you will also need to be responsible for paying your social security and Medicare dues. This can be done using a Form 1040.
  • If you have other employees, their social security and Medicare dues will be paid using an “employment tax.” Typically, the amount of money due for this particular tax will be withheld from your employees’ salaries throughout the year. Depending on the nature of your business, you will need to file Form 940, 941, 943, 944, or 945.
  • Excise taxes only apply to a very specific set of businesses such as trucking companies that use large amounts of gasoline. If your business is non-industrial, you likely do not need to worry about excise taxes.

Correctly filing each of these forms may require an extensive amount of time. Additionally, it is very important to double check everything to make sure there are no costly errors present.

Pay Attention to Deadlines

Most taxes are due on April 15th (which in 2019 will fall on a Monday), but there may be some taxes—especially state taxes—that are due in January. These deadlines are something that the IRS and other governing entities takes very seriously and failing to pay on time can result in heavy financial penalties.

If you are able to anticipate the tax deadlines well in advance, you will certainly be much less stressed once they actually roll around. Paying your small business taxes for the first time can be rather intimidating; but with a strong understanding of how the process works, an awareness of which forms will be relevant for your specific business, and an ability to plan in advance, you will be in a much better position to succeed.

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