Filing Taxes For Your Business
The first step in filing taxes for your business is to get the proper paperwork from the IRS
. For new business owners, the paperwork should be fairly straight forward, with the forms stating what items and amounts need to be recoded.The papers should also ask you a few straight-forward questions about you and your business; all of which need to be answer completely. These questions include things like when you started the business, what goods or services does it offer, where is the business located, and do you have employees.
The most important forms to have on hand are your accounting records. These should include any loans, expenses, business-related bills, sales profits, cost of production, and any other form of money that has gone into your company at all.
Make sure that everything documented is done so correctly and in the appropriate categories and accounts. For instance, do not file employee wages under manufacturing costs. Manufacturing costs should only include the cost of materials that make the products you are offering, and employee wages should be filed under labor costs.
You also have to decide if your company is running on a cash or accrual based accounting system. A cash-based system means you recognize incoming or outgoing money when it is either deposited in your account or paid to a third party. An accrual based system means you recognize incoming or outgoing money when it is earned, even if it is not yet paid.
For instance, let's say you purchase a large quantity of steel from a company and choose to pay off the purchase in monthly installments. On a cash-based system, you log in the accounting books the payment each month when you write a check to the steel company. On an accrual based system, you log in the entire lump sum the month that the initial purchase was made.
Most financial institutions prefer logs that are run on an accrual based system, but many companies run on a cash-based system. Whichever system you choose for your company, make sure it is consistent throughout to avoid any confusion.
Another thing to document on your tax return is whether or not you run your business from your home. If you do you may claim a portion of your residence as a tax deduction for your business.
Since this is a touchy subject with a history of fraud, the house must have a designated area that is used for the sole use of the company. This area's square footage must be measured, and the square footage of the house of a whole must be measured.
Then it must be calculated what percentage of the home is being used for the sole purpose of the company. That percentage of house expenses (property taxes, mortgage, and utilities) may be accounted for as home-office expenses and be claimed as a deductable for the business.
Business owners should also file automobile expenses that are related to their company. For new and young companies, there may be a lot of travel involved, and paying for gasoline and automobile maintenance can get very expensive the first year.
You should keep a log in your car of where you traveled to, who you went to meet with, when you traveled there, how far away was the destination, and how much you spent in gas money. When filing for taxes and claiming automobile expenses, you must state all of these things, and how the trip was relevant and purposeful to your company.
When doing your taxes, be sure to take into consideration the self-employment tax. Things like social security and Medicare taxes are often overlooked, and actually account for a large portion of taxes payable for self-employed business owners.
Be sure to include these in your total quarterly tax payments, and remember that you are not only required to pay for the previous year's taxes, but for the first quarter of the following year.
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