Business owners can owe several federal, state, and local taxes. There are also some common small business tax deductions that owners should take advantage of.
Filing your business taxes on time can save you money. Understanding how your taxes work and the steps involved in filing your business taxes is important.
Know Your Taxes
All business owners pay taxes, and the forms you have to file depend on the structure of your company. Most businesses pay income taxes, and many also pay state and local sales and payroll taxes if they have employees.
Claiming available tax deductions and credits can lower your taxable income and reduce the amount of taxes you have to pay. To claim these deductions and credits, you must keep careful records of all your business expenses throughout the year. This means keeping receipts, invoices, and other business spending records.
Whether you use accounting software or an Excel template, you should record every expense and indicate its category and date. This will help you during the tax-filing process, especially if an IRS audit occurs.
Keep Track of Your Expenses
Filing your Denver Business Taxes is crucial to ensure you meet your tax obligations and get the deductions you owe. But it can be a painful and stressful experience if you don’t keep thorough records of your expenses throughout the year.
You must submit copies of financial business reports (income/profit/loss statement, balance sheet, and cash flow statements) and documents accounting for expenses, assets, loan information, and stock information. If you have the correct documentation, filing taxes promptly will be easier, and you may even be hit with additional fees, interest, or penalties.
The best way to keep track of your expenses is by using a spreadsheet that you update daily, weekly, or monthly, which can be easily viewed at tax time. This will help you avoid missing any deductions and also help when it comes time to make quarterly estimated tax payments.
Calculate Your Taxes
As a small business owner, you must pay taxes on your profits. However, calculating and filing your business taxes can be daunting initially — especially for new small business owners.
Fortunately, you may use many tax deductions to reduce your tax obligation and boost your company’s profitability. These include of car expenditures, personnel salary, and home office costs.
When preparing your business taxes, you must calculate your business profit or loss by subtracting your expenses from your total revenue. This information will then be transferred to the tax forms you must file. For example, if you are a sole proprietor or an LLC, you’ll fill out Schedule C.
Most small businesses also have to pay estimated taxes, which are payments you must send to the IRS throughout the year based on what you expect your net income to be.
Prepare Your Taxes
Whether you file your business taxes using tax software or hire a CPA or enrolled agent to help, prepare yourself for filing season by familiarizing yourself with the various IRS forms and instructions. Knowing what federal taxes you might be responsible for is also helpful.
You must record and categorize all your business transactions, regardless of your chosen form. Keeping track of these in a cloud-based or physical document storage system will save you time when it comes time to file. You will need a balance sheet, a profit and loss statement, a listing of all your business income and expenses, and mileage logs if you drive for your business. Depending on your industry, you may also be eligible for various deductions or credits.
