Preparing and filing your taxes is part of doing business that entrepreneurs must deal with annually. Small business taxes are more straightforward than taxes for large corporations, but business owners can still find themselves scratching their head the first time around.
Accounting software such as the ever popular Peachtree or online services such as Mint.com which help to track or manage expenses can your next tax filing headache free. Or if you prefer, tax preparation and filing can be done on your own or with the help of professional tax consultants. In either case, most tax forms can be submitted online to streamline the submission process.
Obtain an Employer Identification Number online from the Internal Revenue Service. According to IRS.gov, banks and other companies may require an EIN when doing business with you, even though an EIN is not required for all small business tax filings.
Keep accurate records of all sales and expenses throughout the year. Keep items, such as sales receipts, invoices, canceled checks, deposit slips and any other documents, that prove your company’s income and expenses, and that substantiate any possible deductions. Store all tax-related records in a secure location for at least five years. These documents will prove invaluable if the IRS asks you to explain any items on your tax return.
Maintain a bookkeeping and accounting system to record income and expenses. A bookkeeping system for a small business does not have to be complex; a basic single-entry system is adequate for tax purposes. This will further assist you in substantiating income, expense and deduction claims if the IRS asks for further information.
Require each new employee to complete and sign a Form W-4—the form used to determine how much income to withhold for employment taxes – before their first day of work. Withhold the appropriate amounts from each paycheck, and maintain accurate records of all withholdings. Consider placing tax withholdings in a separate and secure account to ensure that you do not have to foot the bill for your staff’s employment taxes when they are due.
Gather and complete all necessary forms. Use Schedule C or C-EZ of Form 1040 to file sole proprietor income taxes. Use Schedule SE of Form 1040 for self-employment income. Use Form 1065 to file partnership income taxes. All required forms can be obtained online at IRS.gov.
Use the IRS’s E-File system to file your tax forms online. A large number of small businesses are eligible to use the E-File system, making tax form submissions quicker and eliminating much of the hassle. E-File can be accessed at IRS.gov/efile.
Complete and send a Form W-2 to every employee and the Social Security Administration each year. Complete and send a Form 1099 to each independent contractor and the SSA. Use the information from your withholding records to complete information for W-2’s and 1099’s.
And there you have it, and perhaps not as painful as you thought after all!