Tax season can be a stressful time of year for everyone, and there are some extra complexities involved for business owners when filing an LLC tax return. If you want to make your LLC tax filing process simpler, easier and maybe even “fun,” keep these eight small business tax strategies at the top of your mind.
Use Your Employer ID Number (EIN) for LLC Tax Filing
Your LLC tax return needs to be filed with your business’s tax ID number, also known as your Employer ID Number (EIN) — not your Social Security number. Don’t make the mistake of confusing your business and personal tax returns. Your Social Security number is a personal, individual tax ID number that cannot be used for a business’s tax return.
You should have received an EIN when you set up your LLC and before you created your business bank account. If you do not have an EIN, you might not be able to file an LLC tax return for the prior tax year, because the EIN is your business’s official ID number to prove its existence with the IRS. Consult a tax professional if you have questions about whether or not your LLC is in good standing for tax purposes.
Are You Filing Taxes as an LLC or S Corp?
Forming an LLC gives you a unique choice of business entity, because it lets you choose how to treat your business income for tax purposes. You can either file your LLC tax return and have the income pass through to the business owner’s individual tax returns, or you can choose to have your LLC file taxes as an S Corporation, which can give you some additional flexibility and potentially reduce your self-employment tax liability. (Learn more about that with Incfile's S Corporation Tax Calculator.)
Consider talking with a professional tax adviser to understand your options for how to file taxes with your LLC.
Collect Your Business Income Records
Before you file taxes, you need to collect your financial records for the previous tax year. Depending on how complex your business is, you might have a balance sheet, a profit and loss (P&L) statement or a simple spreadsheet to track your top-line business income or gross revenue. The way you track your business income will also depend upon whether you use cash accounting or accrual accounting.
Whatever method you use, you need to be able to point to a specific number for how much money your business brought in during the year. This business income will be your starting point for calculating the effect of your business expenses, tax deductions, tax credits and other factors that affect how much tax you owe, or what (if any) tax refund you receive.
Track Your Business Expenses
One benefit of being a business owner at tax time is that there are various business expenses that are tax-deductible. Make a list or spreadsheet of all the various business-related purchases you’ve made during the prior tax year: everything from business cards to website hosting to having meals with clients.
Did you hire independent contractors for your business? Did you spend money on business travel (airfare, hotels, taxis) to attend a business conference to learn new skills or seek new clients? Did you buy new office equipment? Did you contribute money from your LLC to a qualifying tax-deferred retirement savings plan, such as a SEP IRA?
All of these types of eligible business-related expenses can be deducted from your business income for tax purposes, helping to reduce your personal income tax liability after your LLC income “passes through” to your individual tax return.
Be sure to keep careful records and receipts. In case your tax return gets flagged or audited by the IRS, you will need to be able to show proof that your claimed business expenses were legitimate.
Separate Your Business and Personal Tax Deductions
Your LLC needs to be managed like a distinct legal entity with its own financial accounts and separate financial identity from your personal financial life. Don’t use your business credit card for personal expenses. Don’t pay for business expenses with your personal checkbook.
It’s true that if you’re self-employed, there are certain business-related expenses that need to be tracked and reported on your personal tax return, or certain ways that your business finances and personal life might overlap.
For example, if you are self-employed and you have your own individual health insurance policy that has a Health Savings Account (HSA), those HSA contributions and expenses will typically be managed and reported as “personal” expenses for tax purposes. If you have a home office for your business, you can claim a home office deduction, but only for a percentage of the square footage of your home, and only if you meet certain strict guidelines for how you use the space for business purposes.
Pay attention to which expenses are paid for by your business and which are paid from your personal funds. Consult with a tax professional if you have any questions about which is which.
Understand the Implications of the New Tax Law
The 2017 Tax Cuts and Jobs Act (TCJA) took effect on January 1, 2018, and some taxpayers are still getting accustomed to the new rules and requirements of the updated tax code. Make sure you understand these updated expectations so you can avoid any unpleasant surprises at tax time.
One of the biggest changes for LLC owners is the 20% tax deduction for business income from qualifying pass-through entities and the change in bonus depreciation of property. If you were not able to claim some of these deductions last year, or if your tax situation has changed, you might be able to get some additional tax deductions, depending on your business income and other factors.
Know the LLC Tax Return Filing Deadlines
If you set up your LLC to file taxes as an S Corp, your business’s tax filing deadline will be March 15, a month earlier than the typical April 15 deadline for filing individual tax returns. (The exact date might vary by year if the 15th falls on a weekend or holiday.)
If you need more time to file your LLC tax return, or your personal tax return, you can file for an extension of up to six months. But getting an extension on filing does not exempt you from having to pay taxes; you might need to pay attentional tax penalties and fees for each month that you are late in filing your return.
Get Professional Tax Help
Even if your business had a great year, even if you’ve saved plenty of money to cover your tax bill, even if you’ve made estimated tax payments on time throughout the year and even if you’ve used bookkeeping software and have well-organized records of your business expenses, filing your LLC taxes can still be complicated.
It’s often worth getting professional help from a business tax accountant who can help review your tax return, make sure you’re not forgetting to claim any deductions and help you avoid making costly mistakes. Business owners especially tend to have complex situations that would benefit from professional advice at tax time.
Incfile offers an affordable service to help you file your business tax return, as well as your personal tax return. Would you like to get professional tax help to make sure you’re maximizing your tax deductions, minimizing your tax liability and complying with the IRS rules? Talk to Incfile today and get connected with our network of qualified tax professionals.
Ben Gran is a freelance writer from Des Moines, Iowa. Ben has written for Fortune 500 companies, the Governor of Iowa (who now serves as U.S. Secretary of Agriculture), the U.S. Secretary of the Navy, and many corporate clients. He writes about entrepreneurship, technology, food and other areas of great personal interest.