Does the tax season seem to sneak up and stop you in your tracks?
Throughout the year, you spend hours growing your business to the next level. As you rev up for a new year, stopping to prepare your business’s tax return seems more like an inconvenience.
But it doesn’t need to feel that way. You can get ahead of the tax filing crunch by organizing and planning for this annual event. And we’re here to help.
We’ve put together an extensive checklist detailing everything you need to file your taxes. You can even download our FREE tax guide, and you won’t miss a thing! Additionally, there’s a section describing the tax breaks available to reduce your 2020 taxable income, so you pay less tax.
Let’s dive in and go over what you need to know.
During 2021 you pay your 2020 taxes.
What do I need to file my taxes?
Before reviewing the following tax filing checklist, read this article, When to File Taxes 2021: Tax Deadlines, and note the deadlines on your calendar and the forms you need depending on your business structure.
- You’ll need to know your EIN, ITIN, or SSN taxpayer identification number.
- Print copies of your business financial statements: income, balance sheet, cash flow statement, and statement of owner’s equity.
- If you don’t use these types of statements, you’ll need a list of your gross receipts, sales records, beginning and ending inventory amounts, material, inventory, and supply purchases, as well as receipts for sold and purchased assets, returns, and allowances.
- Again, if you don’t have financial statements, you need a list of other income, such as rental receipts and business expenses you paid. You’ll also need copies of your business checking and savings account statements, lists of business assets, credit card statements, statements received such as 1099-INT, 1099-K, 1099-MISC forms (payments you received for services or payments you made to contractors for $600 or more), copies of Form W-2 (wage and tax statements), W-3 (wage and tax statement transmittal), 1040-ES or 500-ES (estimated tax payment records), 940 (unemployment tax), and 941 (reported wages and taxes withheld).
- It’s also a good idea to have a copy of your previous year’s tax return.
If you participated in PPP or EIDL programs, you’ll need copies of those documents, too.
Use the right Forms:
- Schedule C: Sole proprietors and single-member LLCs
- Form 1065 and Schedule K-1: Partnerships and multiple-member LLCs
- Form 1120: Corporations and LLCs taxed as a corporation
- Form 1120-S: S Corporations
Prepare Your Return:
- Start working on your tax return a minimum of 6 weeks before your tax return is due. This should give you time to file for an extension if you can’t meet the deadline. Even when you file for an extension, the tax is due on the original deadline date.
- Before you prepare your return, decide whether to use tax software or hire a tax preparer.
- During the tax filing process, make sure you transfer your income, deductions, credits and deduct estimated payments correctly. You should also report any changes in business ownership.
- Check and double-check your tax return for errors.
Sign and Send your Return:
- Make sure you make copies of the tax return and all attachments before mailing your return. If you owe any tax, include a payment with your return.
Find out what to do if you file your taxes late.
Tax filing breaks for small businesses
When business owners take advantage of tax breaks, they keep more profit by paying less income tax.
- Tax credits: Keep in mind, a tax credit reduces the total tax you owe. For example, if you owe the IRS $2,000 and have tax credits totaling $500, your net tax owed to the government is $1,500.
- Tax deductions: These deductions reduce the amount of income subject to tax. Business expense deductions include items such as costs of goods sold, rent, interest paid, and wages paid to employees.
- Tax exemptions: Certain businesses such as charitable organizations, private and political foundations, and other nonprofits do not pay income tax on revenue.
Typical tax credits business owners can access
See this IRS list of business tax credits you may qualify for. For example, you could apply for the General Business Credit to receive tax filing relief for:
- Motor vehicle credit when placing a vehicle into service
- Credit when paying social security and medicare taxes on employee tips
- Credit for paying expenses for employer-provided childcare facilities and services
- Employer pension plan startup costs credit for 401K, SIMPLE, or simplified employee pension
- Work opportunity credit
- PPP and EIDL tax credits – due to COVID-19, some business owners qualified for these tax credits. See this article for more detailed information.
New tax filing breaks for the tax year 2020 (taxes filed in 2021)
Depending on your business’s legal structure, The CARES Act increased the business interest expense deduction from 30% to 50% for some organizations. This credit is applied to the business’s adjusted taxable income.
Businesses with less than 25 employees can apply for The Small Business Healthcare Tax Credit. The average salary must be less than $50,000 per year. Tax credits up to 50% are available for expenses paid for premiums of plans acquired through the Small Business Health Options Program (SHOP).
Business taxpayers with a net operating loss (NOL) for 2020 or beginning in 2018 can carry back the loss for a period of five years.
Also, contact your local and state authorities for any tax filing incentives available for business owners.
Most common federal tax breaks
The IRS allows business owners to report allowable and customary expenses they spend to run their businesses. These expenses are classified as either ordinary (common expenses for your trade and business) and necessary (expenses that are helpful and appropriate). Most business owners qualify for common tax deductions such as these.
- Business use of your home
- Contract labor
- Legal and professional fees
- Office supplies
For a detailed list of other common business deductions, please see this article.
Common federal tax filing breaks per state
A business of any size that wants to locate, stay, or grow their businesses in California can apply for the California Competes Tax Credit. To receive the income tax credit offered to all business industries, businesses must actively create full-time jobs in California. There is no fee to apply for the credit.
Once the California Compete Tax Credit is issued, the tax credit agreement will indicate when the credit can be claimed on your business tax return.
Additionally, employers that enroll their employees for health insurance under Covered California for Small Business (CCSB) may be eligible for a federal tax credit.
Examples of credits include:
- Hire a Veteran
- Excelsior jobs program tax credit with enhancements for green projects to reduce gas emissions
- Employer-provided child care credits
- Recovery Tax Credit for employers hiring people recovering from a substance use disorder
There is no income tax for Texas businesses and individuals. However, corporations and partnerships pay a franchise tax on 2020 business revenue above $1,180,000.
Business owners can apply for exemptions, credits, and refunds of franchise and/or sales tax relating to:
- solar energy
- job creation
- research and development
- relocation expenses
- renewable energy
- rehabilitation of historic structures
The state offers numerous credits, refunds, and other incentives relating to jobs, investments, taxes paid, health maintenance organizations, and renewable energy.
FREE Tax Guide: tax filing is easier when you’re prepared
Learning something new can be overwhelming but remember that any expert in their field was once a beginner. By using this tax filing information, you can simplify preparing your business tax return and pay the lowest amount of tax you owe.
Our motto at Camino Financial, “No Business Left Behind,” encompasses every aspect of our business. We can help you achieve success, whether deciding between a microloan or small business loan or by providing informative articles.