We’ve Got All the Last-Minute Tax Tips You Need
As spring arrives and March begins to dwindle, you may start to hear the ticktock of the clock. If you’re a small business owner, you’re not alone. As April approaches, our thoughts — and sometimes our fears — turn to tax time. Preparing your tax information for filing can be an overwhelming prospect, especially for newer business owners, and even more so as the deadline approaches. We’re here with last-minute tax filing tips to get you through to April 15.
First, a note: Due to the spread of the coronavirus, the federal government and the IRS have approved a filing extension, moving the deadline back to July 15. Payments have also been deferred through the same time period. However, the IRS is still advising both businesses and individuals to file in advance of the normal April 15 deadline, if they’re able. If you’re prepared to file now, read on…
Last-Minute Tax Tips for Small Business Owners
1. Make a Decision on Outsourcing
In the early days of owning your own business, it might make sense to take a DIY approach to tax filing. But, as your business grows, there will likely come a point when outsourcing to a qualified accountant is the better option. And though time is running short, you can still find help if you need it. So, what are the signs you’re approaching the outsourcing threshold?
- Your revenue is consistently growing. Some experts recommend waiting until you exceed the $1 million mark, but as long as the growth is regular and robust, it might be time.
- As the owner, you simply no longer have time to devote to tax preparation.
- Your workforce is growing and you’re hiring more employees.
- You want to make data-based decisions and need more in-depth tax reporting.
2. Understand How Your Business Is Organized
You already know if you’re an LLC, S Corp, sole proprietorship or partnership, but it’s important that you understand the tax implications for each of these business types.
- Each business structure requires its own forms, and has a list of deductions specific to the business’s organization. It’s important that you fully understand the necessary documents and forms for your type of business.
- For instance, operating an S Corp comes with certain tax benefits, but it also has certain other requirements and regulations. Understanding these before you file will help you maximize benefits while avoiding headaches.
3. Get Your Deductions in Order
Whether you’re using a business tax filing service or filing yourself, it’s vital that you fully understand all the deductions and exemptions to which you are entitled. Hopefully, you’ve been keeping tabs on deductions like mileage, business meals and other expenses, but if not, now is the time to compile your information. Here are a few tips to keep in mind:
- Get out the tape measure and make sure you tally every inch of your home office. The deduction is based on square footage, up to a maximum of 300 square feet, or you can take the standard deduction.
- Hope for the best and prepare for the worst. If you were to be audited, would your documentation stand up? Ensure each deduction has a paper trail (or digital trail), and that all expenses and claims can be proven.
- Understand that solopreneurs and freelancers have their own list of write-offs they can claim to maximize tax benefits and reduce their tax debt.
4. Avoid Common Mistakes
Taxes are complicated, and as your business grows, the tax implications can become even more convoluted. Mistakes are not unusual, but they can be costly. Even if you’re down to the wire, it pays to take the time to check and double-check before you file. Here are a few of the most common tax filing errors:
- Claiming too much: If you can’t prove an expense or deduction, don’t claim it.
- Claiming too little: You might be missing out on some important tax benefits if you neglect certain write-offs like your home office, business meals, mileage and more.
- Mixing business with pleasure: Keep separate credit cards for separate expenses, so you always know what’s what.
- Zero prep: Dumping a shoe box full of receipts on your accountant’s desk is not their idea of a good time, and it could also lead to you missing out on important deductions. Even if you’re filing last minute, take some time to plan and prepare.
5. Give Yourself Time
If you just don’t feel you have time to plan, prepare and file before the April 15 deadline, don’t sweat it. This year, as mentioned earlier, you have an automatic 90-day extension due to COVID-19. But even in years we’re not in the midst of a global crisis, tax filing extensions are available, if you know how to ask for them. Keep these facts in mind:
- Even if you are granted an extension, you’re still expected to pay what you owe by the original deadline. You’ll need to estimate your tax debt and pay it before you file.
- You must fill out and submit Form 7004 to request and be granted an extension.
- Your application MUST be filled out before the April 15 deadline. If you file this late, you’ll face penalties and fines.
- After you receive a six-month extension, that’s it. If you can’t file by the extended deadline, you can expect to be penalized for every month thereafter.
6. Look Ahead to Next Year
So, you’re a bit of a procrastinator. Or, through extenuating circumstances, you’ve found yourself behind the eight ball this tax season. Whatever the reason, once your taxes are filed, do yourself and your business a favor and start planning ahead.
Give yourself an audit (not that kind of audit), and figure out what worked in your tax prep and what didn’t. Plan your expenses for the upcoming year; not a month at a time. Set aside money each month so you won’t be overwhelmed when it’s time to pay what you owe. It’s always better to overestimate than underestimate.
Understand that once you get behind, it becomes much harder to get ahead. Try to avoid filing for extensions, making late payments, etc. Plan to have everything completed before next year’s deadline. We promise — it’s worth the effort.