Nobody likes having to do their taxes, and for small business owners, every minute spent on tax preparation is a minute less spent working on business priorities. That makes it critical for small business owners to be as efficient as possible when doing their tax prep.
To help with that, below you'll see a short tax checklist for small business to follow. By following it step by step, you'll be able to ensure that you take care of every task you need to do without running afoul of any rules or regulations from the IRS or state and local tax authorities.
At a glance: Your small business tax preparation checklist
- Find out when your taxes are due.
- Gather together all of the tax forms you'll need.
- Collect records about your business income.
- Gather up documentation for your business expenses.
- Make sure you send out required information returns, and receive ones you need from others.
- Get an extension if you need one.
- Make changes going forward to adapt to changing tax situations.
Your complete small business tax preparation checklist
To get your small business taxes in good shape for this year — and to put yourself in a strong position for the coming year — here are seven tax checklist items you should make sure you do.
1. Find out when you have to do various tax-related actions
For most people, April 15 is the date that sticks in their mind for when they have to have their individual tax returns done. But for small businesses, deadlines can depend on what type of business you have and how you've chosen to set it up for legal purposes.
Many small businesses end up having the same tax deadlines as individual taxpayers. Others, though, have completely different due dates to consider.
In addition, small businesses have other tax-related tasks they're expected to complete. These have their own deadlines, so it's important to keep all of them straight to ensure none of them slip through the cracks.
Tips on common tax deadlines:
- If your small business is set up as an S corporation or a partnership, your tax return is generally due on March 15.
- Small businesses that are sole proprietorships, single-member limited liability companies, or C corporations have their tax deadline on April 15.
2. Get all the tax forms you'll need
As with deadlines, the specific tax forms you'll need depend a lot on the particular business entity you've chosen to use for your small business.
Each type of business needs slightly different forms, but the general idea is the same: Returns typically include a summary page that offers a high-level look at your tax picture, with supporting schedules and attachments to dig into more detail and provide more granular information.
Having the right forms is crucial to meet the rules.
Tips on the most common tax forms you'll need:
- Sole proprietorships use Form 1040, especially Schedule C, to report business income and expenses.
- C corporations file their taxes on Form 1120.
- S corporations use a special Form 1120-S from the IRS.
- Partnerships must complete Form 1065 and then provide individual partner information on Schedule K-1.
3. Collect your business records relating to income
The IRS wants to know how much income your small business has brought in, and the tax agency has independent ways to verify the numbers you report. It's therefore critical not only to provide correct information, but also to be able to document it.
What's acceptable for documentation differs by jurisdiction and the type of income involved, but you'll want to have it available in case you're audited.
Tips on business income records:
- You'll want to have records of your gross receipts from sales of goods or services.
- If you've received goods back as returns, or had to issue refunds, then separate documentation is useful to make sure you don't count the money you had to give back as taxable income.
- Don't forget about any interest or investment income from financial accounts you own in the name of your business.
4. Get documentation for business expenses
Many lucrative tax breaks are available to small businesses, but you typically have to be able to prove that you qualify for them. Sometimes, you'll have to submit that evidence to tax agencies in order to claim your tax benefit, while in other cases, it's sufficient for you to have it available.
Often, receipts are sufficient to document expenses. But with some deductions, more extensive proof is required. Be sure to get the right information for the right deduction, and doing it correctly up front is much more efficient than having to get corrected information later down the road.
Tips on common small business expenses:
- Many expenses, such as insurance, overhead costs, supplies, utilities, and professional fees, don't involve a lot of extra documentation.
- With some tax breaks, though, a lot more information is needed. Those include the home office deduction, transportation, meals and entertainment, and small business health insurance expenses.
- Checking with a tax professional occasionally to see if you're capitalizing on all available tax breaks can be extremely lucrative.
5. Send out any required information returns, and ensure you receive the ones you need
Small businesses have to report certain information to the IRS. For instance, anyone with employees has to provide W-2 forms to each employee by the end of January, with copies going to the IRS and state and local tax officials.
In addition, small businesses often receive information returns from other parties they do business with for items such as paying interest on loans, rent on rental property, or fees for services provided by outside professionals.
Tips on 1099s and other information returns
- Anyone with workers in their business will need either Form W-2 for employees or Form 1099-NEC for independent contractors. These forms tell workers about their income and allowed deductions.
- In some cases, there are minimum amounts below which you won't have to file an information return. For instance, if you make payments to an attorney, you don't have to file a 1099-NEC form unless the amount you paid is $600 or more.
6. Get an extension if you need one
There's no harm in getting an extension, and if it gives you the time you need to make a full and complete return, then it's well worth doing.
However, you typically need to file for an extension before the original due date of your tax return, and you also have to make sure to pay your taxes on time — even if you've received an extension. The extension is only for filing the return.
Extensions differ by type of business entity, but they tend to be automatic once you file for them. In some cases, you can get multiple extensions, but a second extension, when available, tends to be more difficult to get.
Tips on extensions:
- Extensions for small businesses set up as sole proprietors, single-member LLCs, and C corporations are for six months and run through Oct. 15.
- Extensions for partnerships and S corporations are also for six months but only run through Sept. 15.
- State rules for income tax extensions can differ from federal rules, so check with your state tax agency before assuming that your federal extension request will cover your state return as well.
7. Make changes for the coming year to reflect what you learned in doing your taxes this year
Lastly, look at your final return and see if there are any areas where you think you could improve.
For instance, if you owed a lot of tax when you filed and had to pay penalties, then boosting estimated tax payments during the year could be the right answer. If you got a huge refund, then cutting back on estimated tax payments would give you a little extra cash to put back into your business throughout the year.
Tips on future tax planning
- Overpaying isn't a huge problem from the standpoint of the IRS. However, if your business is cash-intensive, then paying too much in taxes could force you to have to borrow more during the year, costing you more in interest and finance charges.
Underpaying can be a more serious issue. Interest and penalties can apply if the underpayments are too large, and even in the best case, you may find yourself having to come up with a lot of money all at once to pay your tax bill.
You can prepare your own small business taxes
Preparing taxes is no fun for most small business owners, but it has to be done. By following this simple checklist, you'll put yourself in the best position to get your small business tax return prepared quickly and correctly.