At WiseGEEK, we're committed to delivering accurate, trustworthy information. Our expert-authored content is rigorously fact-checked and sourced from credible authorities. Discover how we uphold the highest standards in providing you with reliable knowledge.
What Should I Know About Small Business Tax Preparation?
Before you embark on small business tax preparation, there are some key things you should be aware of so you can maximize your return and stay on the right side of the law. These key things include which expenses you can write off to lower the amount you owe the government, as well as the filing deadlines that apply to your small business. You should also know that whether you’re preparing the return as the owner of the small business, an employee of the small business, or as an outsourced tax professional, failing to report information on the tax return to the best of your knowledge is considered fraud.
The business expenses included in small business tax preparation can be divided into two main categories: general business expenses and expenses that are specific to your small business. General business expenses include costs that are common to most small businesses, such as stationary supplies and office equipment, and operating costs associated with the office space. Expenses that are specific to your small business would not necessarily apply to most other businesses. Some examples of specific small business costs might be costumes if you are a dancer or tanning beds if you own a tanning salon.
If you work out of your home, you can claim a portion of the costs associated with your work space as a business expense — provided that space is used exclusively for your business. First, measure the approximate square footage of your work space, whether it’s a whole office or a small workbench, and calculate what percentage it takes up in your entire home. You can then claim that percentage of your total costs for lights, rent, and heat. Other general business expenses that can usually be claimed whether you work from home or not include: Internet access, business phone, business-related meals and entertainment, and business-related travel expenses. The cost of hiring a professional to do your previous year’s small business tax preparation can also be claimed as a small business expense.
In addition to knowing which expenses to claim for small business tax preparation, you also need to know the deadline for filing your tax return as a small business — which can be different from the deadline for filing personal tax returns. Late filers are typically charged a penalty fee if they owe money with their return. Depending on the structure of your small business, whether it’s a corporation, sole-proprietorship, partnership, or LLP, you may need to pay taxes quarterly rather than annually.
AS FEATURED ON:
AS FEATURED ON:
-
![Businesses need to be aware of what expenses they can write off on their taxes.]()
By: diddenBusinesses need to be aware of what expenses they can write off on their taxes. -
![The structure of the small business determines whether the owner is required to pay taxes quarterly or annually.]()
By: Kablonk MicroThe structure of the small business determines whether the owner is required to pay taxes quarterly or annually.
Discussion Comments
One of the most important things when it comes to tax return preparation for a small business is to keep good records and all of your receipts.
I keep a log in my car and a place where I can keep all of my receipts until I file them. I quickly make notes on them keep them organized.
No matter what type of business tax preparation software you use, this makes it so much easier. In the past I would have things scattered all over the place and not even look at anything until it was time to file taxes.
Since I have made an effort to be more organized it has made a big difference. The interesting this is when I became more serious about this, my business started growing faster.
I recently attended a finance and small business seminar and was blown away by all the deductions a corporation can take. I was aware of many of the common deductions, but had no idea about some of them.
We have often thought about opening up our own business, but have never followed through with it. I currently prepare our own taxes, but if we had a small business I wouldn't feel confident doing them myself.
There are so many different policies and procedures when it comes to small business tax return preparation. I wouldn't have any idea how to take advantage of all the deductions available.
@John57 - I once went to a class on small business tax preparation and the instructor said this is often a red flag area for the IRS. They are very adamant about this being an exclusive area.
I have a friend who has a hair salon in her home. The space she has set aside for her business is deductible because she does nothing else in this part of the house.
Another advantage she has is having a separate entrance and exit for her business. In her case it is easy to tell this space is exclusive and she can take advantage of the small business income tax deduction.
I am involved in a multi-level marketing company, and I have deducted mileage traveled in my car, but have never taken a home deduction for my small business.
Both my husband and I have a small business that we run from our home. We share the same office space and this space is where we have our computers, office equipment and take care of a lot of our business needs.
I know that legally we could deduct a portion of our household expenses for this space when we file our taxes. I have never done it though because this area is not exclusively used for our business.
We also use this office for work and personal use once in awhile. Because this space is not exclusive for our business, I have not felt it was worth taking any chances. Every year when we go through our income tax preparation I always pass on these deductions.
Post your comments