As a small business owner, you’ve got more than enough on your plate. You may run the day-to-day operations of your business, manage both customers and employees, and funnel efforts toward growing your business and its services. With all of these responsibilities, it can be hard to find time for accounting and tax preparation too….
Are you, like many small business owners, looking to outsource your small business taxes to an expert? If you’re planning on using an accountant or small business tax services, we’re here with everything you need to prepare.
Do you need a small business tax service?
What to look for in a small business tax service
What to gather for your tax preparer
Do you need a small business tax service?
You might wonder if outsourcing your small business taxes is the right choice for you and your business needs. While it does depend on your particular situation, there are a few questions that you can ask yourself to help guide your decision:
- Are you worried that you may not have time to complete your business tax return by the IRS tax deadline?
- Are your small business taxes complex? If you’re not sure how to answer this question, consider if your business has any special circumstances or arrangements that must be accounted for when considering your business tax liability.
- Do you have an outstanding debt with the IRS?
- Have you sought tax settlement services or filed for bankruptcy in the past?
- Do you run an LLC, S Corporation, or are self-employed?
If you answered yes to one or more of these questions, tax preparation services could be a responsible choice for you and your small business. Tax preparation services can help you remain in good standing with the IRS and ensure your tax return is completed in accordance with federal and state tax laws.
What to look for in a small business tax service
Determining that you want the assistance of a tax professional is a great way to start this journey, but it’s possible that you don’t know where to go next. There are a few factors to consider when choosing a tax preparer:
Budget
When choosing a tax service for your small business, your budget might be a top priority. Of course, how much your preparation services will cost depends on your specific needs. It’s also important to consider the option to e-file with a tax software, and how that plays a part into your budget.
On average, the cost of hiring a tax professional can range from just over $100 to well over $400 per hour. While this might sound like a large expense, it can save you time—according to a 2015 survey, 1 in 3 small business owners reported spending more than 80 hours per year working on filing taxes themselves.
To help you get the most out of your money and time when preparing your small business taxes, consider using QuickBooks Live as a year-long bookkeeping solution to keep your books up to date. Keeping your books up-to-date throughout the year can help you achieve some peace of mind, especially for tax season, and might make your overall tax pricing more sustainable.
Workload
There are different professionals who can help you prepare your taxes depending on the complexity of your situation. Naturally, the more difficult the situation, the more experience is needed, and therefore the higher the cost. For example, an enrolled agent (EA) is a tax advisor who can assist with tax-related consultations. EAs are a viable, inexpensive option for a simple filing process.
Certified public accountants (CPAs) are licensed professionals who can perform accounting procedures and prepare tax returns, among other things. Typically, a smaller CPA firm is the more cost-effective route—perfect for a small business.
For small businesses with larger tax-related needs, such as requiring legal representation in court or fighting tax disputes, a tax attorney may be required. While tax attorneys can also help file taxes, it can be quite expensive due to the complexity of the circumstances they handle and are often considered a last resort.
Common tax questions
Naturally, you may have questions about the tax preparation process before you meet with your tax professional. Keep reading for answers to some common small business tax planning questions.
Do I have to pay small business taxes?
You might wonder if it’s even necessary to pay taxes as a small business. While most businesses will need to pay taxes no matter how much they’ve made over the year, anything earned over $400 is considered taxable income and therefore taxes must be filed. Remember that the income you report must match the amount reported in the 1099 Forms you receive.
What kind of taxes do I need to file?
As a small business owner, you might not be aware of all that you are responsible for. Beyond federal and state taxes, there are a few kinds of taxes that small businesses may need to file. While it’s possible that you do not need to file all of these, it’s helpful to know that the following might be applicable:
- Employment tax: If you have employees, this tax is deducted for things like Medicare, unemployment, and Social Security.
- Income tax: This is what you pay on the income your business earned over the fiscal year.
- Property tax: This is paid on any land, property, or real estate that your small business owns.
- Self-employment tax: This is paid to cover taxes for Medicare and Social Security.
- Excise tax: This is for goods and services related to fuel, tractors, and air transportation.
- Sales tax: Most states have a sales tax requirement, meaning that if you sell a good or service, you are required to collect and report sales tax.
While this can seem overwhelming, remember that your tax pro will be able to walk you through exactly what needs to be done to ensure proper tax compliance.
What is a small business tax deduction?
A tax deduction is an expense that you can deduct (or write off) from your taxable income. This helps with a potential tax refund, which is quite beneficial to you as a small business owner. While there are several things that can be considered a small business tax deduction, these are the most common:
- Insurance benefits: This includes premiums such as health insurance and business owner’s policy.
- Vehicle expenses: If you use a vehicle specifically for business purposes, the cost of vehicle operation can be deducted (either car expenses or standard mileage).
- Rent expenses: This applies to a space that is rented for business operation, including if you operate out of and rent your home. Besides physical location, this can also include equipment.
- Telephone/internet expenses: This expense requires diligent recordkeeping to deduct but can be beneficial to you as a small business owner. Keep in mind that if your personal internet connection and cell phone are used for business purposes, you can only deduct the amount that is for business use—not the full amount.
- Professional services: These relate to the direct needs of the business, including lawyers, accountants, tax preparers, and bookkeeping services. Remember that if you use these services for personal use, that time is not deductible.
What to gather for your tax preparer
If you do decide to work with an expert for your small business tax preparation, there are several considerations to keep in mind before work begins.
If you’re working with a tax preparer for the first time, keep in mind that the process is not completely hands-off. You will need to provide the preparer with the information they’ll need to complete your small business tax return.
Here’s a list of common items that your tax professional may need to prepare your taxes:
- Personal information
- Small business information
- Financial statements
- Tax forms
- Business expenses
Take a more in-depth look at these items below.
Your personal information
This includes information that you would normally provide on an income tax return, such as your legal name, address, and Social Security number, among other things. If you completed a small business tax return last year, simply bring the old tax forms along with you, as they should include all of the above information. Your previous small business tax returns will also give your tax preparer a high-level view of your business needs and previous tax year’s deductions.
Your small business information
In addition to your personal information, you’ll need to provide information about your small business. That includes your Employer Identification Number (EIN) if you have one, as well as your legal business name. This, too, will be listed on last year’s income tax return if you have it.
Lost or misplaced your EIN? Follow some tips from the IRS to help you find it.
Your financial statements
The bulk of the information that your tax preparer will need will be included in your financial statements. This includes things like:
These documents will provide your tax professional with information about the financial standing of your company. This financial information includes business income, business expenses, and the origins and recipients of those payments.
Your relevant tax forms
It’s important to bring your tax forms with you to your appointment. Do you have employees or contractors? If so, you’ll need to provide your tax preparer with payroll information. You’ll also need to provide a W-2 for each employee. Finally, you’ll need a 1099-MISC for each contractor to whom you paid $600 or more over the course of the year.
And if you provide health insurance to your employees, be sure to gather that information as well—it can be used as a tax deduction for your business.
Your business expenses
Be sure to gather all information about any expenses that relate to your business to be considered for tax deductions. This is also a great time to gather your full business records. The list of relevant expenses is lengthy, but includes things such as:
Expenses relating to your office, including:
- Rent
- Utilities
- Office supplies
- Wi-Fi and phone
Travel expenses, including:
- Motor vehicle expenses
- Flights
- Meals
- Hotels
Legal and professional fees, including:
- Bookkeeping services
- Legal consult
- Accounting services
If you have any questions on the information you need, it’s best to consult your tax advisor prior to your appointment to file your small business taxes.
How to be prepared throughout the year
Finding small business tax help might seem like a large project, but there are a few steps you can take throughout the year to make this process an easy part of your business plan.
Invest in bookkeeping software
In the age of, “There’s an app for that,” why should you keep your books by hand? Your accounting software can save you a significant amount of time throughout the year. It will also be a huge help when it comes to prepping for tax preparation services.
Bookkeeping and accounting software can track and tally all of your financials, as well as your business expenses, payroll information, and more. Plus, you can give your tax expert direct access to your bookkeeping software so they can easily pull the information they need.
QuickBooks offers small business owners the tools they need to record and organize important business finances. With streamlined reports, you can help your tax preparer navigate any tax situations they may find when preparing your small business tax returns. If you need help with your books, you can work with a QuickBooks-certified bookkeeper on QuickBooks Live to ensure you have clean books and accurate reports.
Start early
Don’t wait until April to start on your tax preparation. Not only will your tax professional be crunched for time, but chances are they’ll be booked by then.
Find a tax professional now, whether it’s January or August. Get on their books sooner rather than later. By having an expert on hand, you’ll be able to ask tax-related questions as they come up. That can save you time, stress, and confusion come tax season.
Keep your receipts
When conducting business, no matter what you’re buying, keep your receipts. Whether it’s a bill for a lunch meeting, a tank of gas on a work trip, or a new pack of pencils, it may be deductible come tax season, so be sure to keep it!
Organize your receipts by type. Travel expenses, office expenses, and miscellaneous expenses are a few good categories to start with. Save your accountant the tedious work of categorizing your costs—it will save you money on your accounting bill.
What to do next
No matter how simple or complex your business is, seeking the assistance of small business tax services can be a huge help. They can save you time, money, and the headache of having to deal directly with the IRS.
Working with a tax expert will help to ensure that your state and federal tax returns are completed correctly, providing important peace of mind. It also may give you advantages you weren’t previously aware of, such as tax deductions or tax credits. Understanding and correctly filing your small business tax payments will only help set you up for further success.
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