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.