NBSB’s Guide to How to Prepare Your Small Business for Tax Season
Tax season for a small business can be hectic and stressful time. Completing your business’ yearly taxes between the day-to-day running of your business can take a lot of preparation, especially if it’s your first time doing them. So here are some great tips to help you prepare for the tax deadline.
- Separate your personal and business finances
Keeping your personal finances separate from your business finances is key to simplifying the tax filing process. Having a business bank account for all of your business-related financial transactions helps to keep a clear history of revenue and expenses for your business. This will also help provide a path in the event of an audit.
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- Gather the forms and documents you may need
Knowing which forms and tax documents your business needs to file should be one of the first steps any business owner takes. The type of form your business requires will depend on the nature of the enterprise you run. For example:
Sole Proprietor: Attach a Schedule C form to your personal income tax return, or use a 1099-MISC
Corporation: Use a 1120 form
S Corporation: Use a 1120S form
Partnership: Use a 1065 form
The information needed in order to complete your business’ tax return can be extensive. Having the below items on hand before you start can help to streamline the process.
Bank and credit card statements
Asset purchase details
Last year’s business tax return (if applicable)
- Breakdown your income and expenses
A thorough breakdown of company income and expenses will need to be completed for any business owner.
Typical expense items are:
- Employee wages
- Office rent or a portion of the rent or mortgage of your home
- Fees paid to professionals such as your accountant
- Payment to contractors (Form 1099-MISC or 1096)
- Insurance premiums
- Phones and communication devices
- Transportation and travel
- Office supplies and equipment
- Computers and internet fees
Typical income items are:
- Checking and savings account interest (Form 1099-INT)
- Sales records
- Gross receipts
- Returns and allowances
- Other unclassified income
- Thoroughly research deductions
Proving an expense is relevant to your business means you can deduct it from your taxable income, making it so you owe less in taxes. Small business owners can be entitled to a range of deductions like supplies, insurance, software, employee reimbursement, and some startup costs. Making sure that you thoroughly research what deductions you might be eligible for and employing them correctly can save a business owner quite a lot of money that can then put back into the business.