Is Your Small Business Ready for Tax Time?

Information You Should Know About Filing Small Business Taxes

Is your small or home business
ready for tax time?

Not everyone is a tax professional when it comes to filing for themselves and when the sometimes complicated process that goes along with filing taxes for a new business is added to the mix, it can be easy to make mistakes. Even though making mistakes is human, the IRS does not take slip-ups lightly, even if they are honest mistakes. Before filing taxes for your business this year, it is vitally important to ensure you are using and correctly filling out the right forms to stay off the IRS’s naughty list.

Know Your Small Business Type

Depending on who or what you are filing for, there are different forms that will need to be filled out. A great resource for finding the paperwork you need is the IRS website – the site also includes information on choosing the right tax preparer and exactly what forms will need to be filed for you small business. You will also need to determine what type of business you have in order to define what forms should be used. Some of these business types include partnership, corporation, sole proprietorship, or LLC.

In addition to determining your small business type, you will also have to decide whether or not the IRS will see your small business as a hobby. The best way to accomplish this is to compare your business against a number of different criteria that help separate hobbies from small businesses such as the company’s profitability margins over the last three to five fiscal years. After review, if your small business holds a “hobby” status, there may be a different form you need to complete.

Filing for Freelancers

Many freelancers make the mistake of filing their taxes as a small business. Since these professionals do not require a legal structure to do business or hold any liability they do not have to file their taxes in this manner. Since this is a common misconception among many freelancers, the best course of action is to work with a tax professional – ideally one who understands the type of work you do and industry you work in – in order to ensure your taxes are being filed correctly and for the maximum refund.

Filing for Proprietorships or Partnerships

Most small businesses are considered by the IRS to be either proprietorships or partnerships. Once your business type has been determined, the next step is to identify which tax forms need to be completed in order to file correctly. Since choosing the correct forms is often determined by the type of taxed you need to pay it is important to know and understand what business taxes the federal government levies – these include self-employment tax, excise tax, income tax, and employers tax.

There are a number of forms that will need to be completed in order to file taxes correctly as a small business, and these forms are broken down into five specific categories. These categories include general forms, general business expenses, starting and operating a new business, employee benefits, and specialized forms. All of these forms are downloadable from the IRS website, along with detailed instructions to help ensure they are completed correctly.

If you found this information useful, you may also want to follow Stacy O’Quinn on his personal blog. Stacy has helped dozens of individuals create their own work from home business and he would love to help you too! For more information about Stacy and to visit his personal blog, click here.

*Photo Courtesy of Tax Credits via Creative Commons License