What makes tax season so stressful for most small business owners and freelancers? I think it can be chalked up to a few things. First, if you haven’t kept up with your bookkeeping, then you’re facing a year’s worth of accounting homework with a fast-approaching due date. If you don’t know how much you’ve made, you can’t know how much you’ll owe in taxes - you’re flying blind and that’s scary.
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Everything You Need to Know About Small Business Taxes /
Disclaimer: The following is not tax advice. It's a guide to help business owners and the self-employed understand their tax obligations.
Small businesses and their owners have a plethora of ways they can and may be required to pay taxes. From Federal to local taxes, once you start to wrap your head around the American tax system, you'll realize it's kind of a hodgepodge of laws and rules put together over time. Think of it as an ugly collage of regulations, but it's much worse because percentage math is involved. Another frustrating aspect is that the laws may change. We saw this most recently in 2019 with the Tax Cuts and Jobs Act. Although a good accountant will help you navigate through the ever-changing tax code, as a business owner or freelancer, it's your responsibility to get a foundational understanding of the world of business taxes.
This guide is to help business owners and the self-employed understand their tax obligations. Once you can wrap your head around how small business taxes work, you'll be able to use this knowledge to make better decisions and to ask your tax advisor (your accountant) better questions.
Read MoreHow to Have a Smooth and Worry-Free Tax Season /
Written by Luke Frye
Tax time is coming again — you can feel it, can’t you? Like a vibration on a train track.
It’s unstoppable, yes, but that doesn’t mean you have to be flattened. Learning about how to handle your taxes is the best way to avoid a nightmare scenario. The good news is that there are some basic principles, and it doesn’t take a wizard to learn them.
Here are four ways to have a smooth tax season, no locomotives involved.
Read MoreWhat Is A Tax Extension and Is It Right For You? /
Written by Luke Frye
The IRS may seem like an unforgiving institution, always breathing down the necks of small business owners for the next payout. But the taxman is actually quite obliging when it comes to allowing extensions on your tax filings.
What is a tax extension?
It’s easy to request several more months to finish your tax paperwork. However, don’t get too excited: The extension is only for the filing of your return, not for the actual payment of your taxes.
Read MoreThe Top Five Tax Return Mistakes and How to Avoid Them /
Written by Luke Frye
Okay, this is going to sound extremely biased... but, as an accountant, I strongly recommend hiring a professional to file your business’s tax returns.
Sure, you’ll have to part with some of your hard earned cash in the short term. But I guarantee it will save you time and headaches. And if it helps you avoid making costly errors on your tax return (y’know, the ones that result in IRS fines), it’ll also save you money in the long run.
That said, I’m aware that it’s not always possible to hire a pro. So, if you’re doing your own tax return this year, here are some common mistakes to avoid.
Read MoreTop Nine Tax Code Myths and How to Stop Falling for Them /
Tax filing and small biz accounting are complicated at the best of times. So, as a CPA for photographers and creative biz owners, I spend a lot of time busting tax myths for new clients.
Here are some of the most common tax myths that trip entrepreneurs up. Avoid them all and file a better tax return this year.
Read MoreFive Things You Thought Your Accountant Was Doing /
Accountants are smart, hard working, and they basically do everything for you, right?
Well, yes and no.
Typically your tax accountant (maybe you call them an EA or a CPA) is focused solely on filing your federal and state income taxes. This means there’s still a lot of “financial admin” you’ll have to take care of on your own to keep your business running.
Here are five financial tasks you’ll need to get done to keep your business running smoothly.
You’ll need to take care of these yourself or commission your accountant to do in addition to tax filing.
Read MoreSmall Business Year-End Tax Strategies /
It’s a common misconception that the tax code is rigged so the rich benefit and the poor are penalized. While the uber wealthy can definitely afford shrewd accountants and savvy tax attorneys to help, there’s another perspective to consider. The tax code favors employers versus employees. As a small business owner, you’re an employer. Employers have considerable more strategies available that can help you save money.
Read MoreHow to Save for Taxes /
Disclaimer: I am not an accountant and this is not tax advice. There are different methods and strategies for saving for taxes. This is one I’ve found to be very simple.
If you’re tired of being totally freaked out about owing taxes because your business earned money, listen up. Instead of being unsure about how you’ll pay your tax bill, you can get ahead of the curve by saving for your taxes as you earn income.
Read MoreWhat Do You Need to File Your Taxes? Your Tax Prep Checklist /
It’s the most wonderful time of the year, friends. Yes, welcome to the joys of tax season!
The tax checklist below can be used to help you find and organize the tax documents that you’ll need to prepare and file your taxes.
Personal Information
Your social security number or tax ID number
Your spouse's full name and social security number or tax ID number
I f you have a dependent or dependents, here’s what you’ll need to gather:
Dates of birth and social security numbers or tax ID numbers of your dependents
Childcare records (including the provider's tax ID number) if applicable
Income of other adults in your home
Form 8332 showing that the child’s custodial parent is releasing their right to claim a child to you, the noncustodial parent (this may or may not be applicable to you)
Records of Your Income
If you were employed during the year:
Forms W-2
If you received any unemployment benefits:
Unemployment, state tax refund (1099-G)
If you received income from being self-employed:
Forms 1099-MISC that you receive for work you or your business performed.
Schedules K-1 (usually your business’ accountant will prepare these)
Records of all expenses — check registers or credit card statements, and receipts. If you have been keeping track of these things through bookkeeping, your expenses should get reported to your annual profit and loss statement.
Business-use asset information (cost, date placed in service, etc.) for depreciation. If you have been keeping track of these things through bookkeeping, some of this data will show up on a balance sheet and some of the data your accountant will help you figure out.
Office in home information, if applicable. What’s the square footage of the space you use for business only? How much is your monthly rent or mortgage?
Record of estimated tax payments (Form 1040ES), if you made any.
If you earn Rental Income from renting a property:
Records of income and expenses
Rental asset information (cost, date placed in service, etc.) for depreciation
Record of estimated tax payments made (Form 1040ES)
If you’re retired and you have Retirement Income from your retirement assets/accounts:
Pension/IRA/annuity income (1099-R) - You can usually find this online.
Traditional IRA basis - The amounts you contributed to the IRA that were already taxed
Social security/RRB income (1099-SSA, RRB-1099)
If you earned interest or dividends from your Savings & Investments
Interest, dividend income (1099-INT, 1099-OID, 1099-DIV) - You can usually find these online.
If you sold stocks or other assets/property, how much income did you earn from these sales. This information is usually reported on a 1099-B, 1099-S
If form 1099-B doesn’t have the price you paid of the assets you sold, you’ll need to track that down.
If you have reimbursements from a Health Savings Account or long-term care reimbursements (1099-SA or 1099-LTC)
Expenses related to your investments - What fees do you pay for the privilege of investing your money?
Record of estimated tax payments made (Form 1040ES), if you made any
Other Income & Losses. These may or may not be applicable to you:
Gambling income (W-2G or records showing income, as well as expense records)
Any income from jury duty records
Hobby income and expenses
Prizes and awards
Trusts
Royalty Income 1099 Misc.
Any other 1099s received
Re cord of alimony paid/received with Ex-spouse’s name and SSN
Deductions
If you own a Home:
Forms 1098 or other mortgage interest statements
Real estate and personal property tax records
Receipts for energy-saving home improvements
All other 1098 series forms
If you made any Charitable Donations:
Cash amounts donated to houses of worship, schools, other charitable organizations. Usually the 501c(3) you donated to will provide you with receipt or letter that reflects the amount you donated.
Records of non-cash charitable donations
Amounts of mi les driven for charitable or medical purposes
Medical Expenses
Amounts paid to doctors, dentists, hospitals
Health Insurance - The forms and certificates will be automatically sent to you, so just make sure to keep them with all your tax docs.
Form 1095-A if you enrolled in an insurance plan through the Marketplace (Exchange)
Form 1095-B and/or 1095-C if you had insurance coverage through any other source (i.e . an employer, insurance company, government health plan such as Medicare, Medicaid, CHIP, TRICARE, VA, etc.)
Marketplace exemption certificate (ECN) if you applied for and received an exemption from the Marketplace (Exchange)
If you had any Childcare Expenses:
Fees paid to a licensed day care center or family day care for care of an infant or preschooler.
Wages paid to a baby-sitter.
Don't include expenses paid through a flexible spending account at work.
If you had any Educational Expenses:
Forms 1098-T from educational institutions
Form1098-E if you paid student loan interest
Receipts that itemize qualified educational expenses
Records of any scholarships or fellowships you received
State & Local Taxes or Sales Tax
Amount of state/local income tax paid (other than wage withholding), or amount of state and local sales tax paid
Invoice showing amount of vehicle sales tax paid
If you made any contributions to a Retirement Account & Other Savings
Form 5498-SA showing HSA contributions
Form 5498 showing IRA contributions
All other 5498 series forms (5498-QA, 5498-ESA)
Job Expenses & Tax Prep Fees
Employment related vehicle expenses (tolls, mileage, gas, maintenance, license, property tax, interest expense, parking)
For educators in grades K-12, receipts for classroom expenses
Employment-related expenses (dues, publications, tools, uniform cost and cleaning, travel)
Job-hunting expenses
Record of moving expenses not reimbursed by employer
Amount paid for preparation of last year’s tax return
If you suffered a Federally Declared Disaster
City/county you lived/worked/had property in
Records to support property losses (appraisal, clean up costs, etc.)
Records of rebuilding/repair costs
Insurance reimbursements/claims to be paid
FEMA assistance information
Check FEMA site to see if my your has been declared a federal disaster area