10 Ways to Prepare for Business Taxes

Paying taxes is clearly a requirement for businesses large and small. Taxes provide revenues that local, state, and federal governments use to fund essential public services, including police, fire, a justice system, defense, health, education, infrastructure, and much more. All these contribute to a functional, orderly, healthy, and prosperous society. Among the many things a small owner needs to do is the critical responsibility to properly prepare for business taxes.

Why It is Important to Pay Business Taxes? 

In general, every business that earns income must pay taxes. Businesses are subject to a range of taxes, including local income taxes, state and federal income taxes, employment taxes, sales taxes, use taxes, property taxes, and, in some jurisdictions, environmental taxes. Not paying taxes, paying taxes incorrectly, and missing tax deadlines all make a business subject to tax penalties and interest, plus the problems and time required to respond to tax authority inquiries. Paying taxes correctly and on time helps to improve a business’ credit score and contributes to an owner’s peace of mind. Thus, it is wise to take proper steps to prepare for business taxes.

10 Ways to Prepare for Business Taxes 

Here are ten ways for owners to wisely prepare for business taxes and handle tax obligations in a timely manner. 

1. Correctly classify your business. Small business owners should consult with their attorney and accountant to ensure the correct classification of their business from among these possible classifications: C Corporation, S Corporation, Limited Liability Partnership, Limited Liability Company, Single Member LLC, or Sole Proprietorship. 
2. Separate business from personal expenses. Clearly separate business and personal entities. 
3. Keep thorough and accurate financial records, including capturing all business revenues and expenses. 
4. Accurately report all income to the IRS. 
5. Properly manage all payroll, including paying and reporting payroll taxes. 
6. Take advantage of capitalization rules when acquiring tangible property or equipment for your business. 
7. Know what IRS forms you must complete and fill them out correctly. 
8. Know and comply with all small business tax deadlines. Stay on top of all business tax payments. 
9. File for a business tax extension if needed. 
10. Get professional accounting, tax preparation, and compliance assistance.                            

Common Business Tax Mistakes to Avoid 

It is smart to prepare for business taxes in advance to avoid mistakes and avoid being caught off guard with business taxes. Two of the most common mistakes are overreporting and underreporting income. Poor recordkeeping and calculation errors can cause trouble with the IRS, especially when income is underreported, because underreporting can result in an audit and possible penalties. Overreporting income will cost you higher taxes. Clerical mistakes like incorrect employee social security numbers or addresses can cause problems. Misclassifying workers and overstating deductions can cause problems. 

A serious but common and avoidable problem is filing the wrong tax return.  

It is key to prepare for business taxes by keeping accurate records of income and expenses, being aware of and preparing for tax deadlines well in advance of tax due dates, and utilizing the services of an accounting and tax professional.

Seek Professional Business Coaching Assistance 

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