Small Business Guides
How to make tax filing simpler
8 min read
March and April are busy times of year for US companies. Tax filing dates for small businesses, LLCs and corporations all fall due in these months. What can you do to simplify your tax preparation and filing?
Understand your obligations
Every business in the US has to file its taxes. That means supplying the IRS with all the necessary information about your finances for the year. Tax calculation is rarely straightforward:
- Tax codes and rules change every year.
- New schemes such as the Affordable Care Act will affect your taxes.
- Travel and entertainment allowances are changing.
- Personal tax brackets are frequently adjusted.
The IRS won't wait, so this isn't something you can ignore. It's important to keep on top of tax preparation and filing. In this guide we'll look at ways of making that easier.
Know the dates so you can plan ahead
Don't leave things until the last minute. It makes sense to prepare for tax filing well in advance. That means you need to know when to file. For 2015 the following dates apply:
- March 15th for corporations and S corporations, but extensions may be granted until September 15th.
- April 15th for sole proprietors and single-member LLCs, both of which must submit Schedule C forms. Extensions may be granted until October 15th.
- April 15th for personal income tax returns.
Corporate taxes are due on the 15th day of the third month after the end of a company's financial year. So if your corporation has a year-end date of December 31, your taxes are due on March 15.
Because April 15th 2015 is a Sunday, the actual filing due date for many businesses is April 16th.
If you've already filed your 2015 taxes, great. Take a break for now and get back to running your business. Then come back and read this guide so you're prepared for next year.
But if you haven't yet filed your taxes, don't put it off any longer. Whether you've applied for an extension or not, act now. The IRS has little patience for late filers. Remember, the more carefully you plan, the easier your tax filing will be.
Get the help you need
Filing taxes can be a chore, but nobody said you have to do the work alone. Accountants, financial planners and bookkeepers can help you.
If you don't already have one of these working for you, find one. For example, our guide to choosing the right accountant will get you started.
We'll look at some of the most important aspects of tax filing in this guide, but not the fine detail. That's why you need someone with all the knowledge on your side.
Filing taxes can be a chore, but nobody said you have to do the work alone.
What expenses can be deducted?
Small businesses can deduct a wide range of expenses from their taxes. Almost anything that's bought directly for business use can be deducted. For example:
The Standard Method allows for 57.5 cents per business mile plus tolls and parking. But if you're using the Actual Method, you should calculate all vehicle expenses. This includes repairs, car insurance and even car washes. Then multiply the total by your business percentage. That's simply the number of miles you drive on business for the year, divided by the total mileage for the year.
- Home office
Again, there are two choices. The Simplified Deduction Method allows you to deduct $5 per square feet of area for business, up to a maximum of 300 square feet. For the Standard Method, you must keep track of utility bills, maintenance, and mortgage interest or rent. Then you deduct the business percentage – the proportion of your home used for business purposes.
- Travel and entertainment
Legitimate business travel expenses are allowed, as are some aspects of client entertainment. These are areas that the IRS tends to scrutinize carefully, so use your judgment here and get advice if you need it.
- Health insurance premiums
The law has changed, so now you can deduct 100 percent of health insurance costs if you're self-employed.
- Affordable Care Act
This is a big topic. Read our guide to the Act to find out how this applies to you. Most businesses can apply for a tax credit of up to 50 percent of their costs under the Act.
- Retirement plan contributions
A 401(k) plan or a Simplified Employee Pension (SEP) are deductible. Also, you can deduct contributions made as late as the October 15th extension date.
Always check with your accountant to make sure your deductions are correct. The rules frequently change, so this is an area where it pays to get professional advice.
Pay by installment
Filing your taxes is one thing – paying them is another. Luckily, small business owners don't have to make the full payment in one go. You have the option of making quarterly payments based on estimated taxes.
- April 15
This isn't just the income tax due date. It's also the due date for your first quarterly estimated tax payment. That means you'll pay estimated taxes on your income from January, February and March.
- June 15
Due date for payment of estimated taxes based on income from April, May and June.
- September 15
Due date for payment of estimated taxes based on income from July, August and September.
- December 15
Due date for final payment of estimated taxes for the year, based on income from October, November and December.
These dates aren't actually quarterly – there are only two months between the April and June payment dates. This means you'll have to make an estimate of taxes owed before the month is even over. The same is true for the September and December dates.
The IRS's tax calendar is a useful resource. Use it to keep an eye on filing and payment dates.
10 tips to make tax filing easier
Anything that makes the filing process faster and simpler is worth considering. Tax issues can take up a lot of your time. As a small business owner that's time that could be better spent growing your business. Here are 10 tips to simplify the tax filing process.
- Choose e-filing and e-payment
Why print out forms to fill in by hand when you can just click "Send" on an online form? This is an option in most states now. In fact some states require it, because it gives them faster access to tax revenue.
- Use the right software
If you're still trying to calculate your taxes using spreadsheets or old software, it's time to upgrade. Modern accounting software can save you time and money by simplifying the tax calculation process. It will do most of the work with you. And if it's cloud-based software, you can access it online from anywhere at any time – using a laptop, smartphone or tablet.
- Know your tax bracket
If you know this it will give you an idea of what your taxes will be. You can find out online, using this tax brackets calculator.
- Maximize your retirement fund
Money paid into your 401(k) or IRA plan will reduce your taxes – because both schemes are tax deductible. Contributions can be up to $17,500 (or $23,000 if you're 50 or over) for 401(k) plans. You can add $5,500 (or $6,500 if you're 50 or older) to an IRA. These figures are for the 2014 tax year.
- Keep your accounts in order
Filing is easier when everything is in the right place. Store all your tax-related documents safely. Add notes to transactions if necessary to help you remember what they were for. Manage your accounts payable, accounts receivable and general ledgers in an organized way. If this data is stored in cloud-based accounting software, you'll always be able to get to it when you need it.
- Reconcile regularly
Reconciling your accounts on a regular basis is a great idea. It means your accounting information is always up to date. It also means you don't have to try to decipher expenses and receipts months after they've occurred.
- Be prepared for an audit
No business enjoys being audited, but it's increasingly a fact of business life. So be prepared if the IRS should knock at your door. Consider audit insurance from your accountant so you aren't hit with unexpected extra costs.
- Be alert to scams
Tax filing time is a busy time for scammers. If an email, phone call or other message claims to be from the IRS, think before you respond. Never give away your personal information or banking details to anyone without checking their identity.
- Spend some time at the IRS SMB Tax Center
The Tax Center is a great resource for small businesses and self-employed people.
- Double-check the figures before filing
Make sure you've got every figure correct. Sometimes it can help to print out the completed forms – even if you're filing online. Seeing the numbers on paper might help you catch errors that aren't so obvious on a screen. Ask an accountant or bookkeeper to go over them too.
Take tax filing seriously
There's a lot of information to think about in this guide, but in some respects we've barely scratched the surface. The IRS has books full of rules and regulations.
So don't take chances. Use all the resources available to get your tax information right. Accountants, bookkeepers, good accounting software and online resources such as the checklist at H&R Block can all help.
If you're still stuck, ask the IRS. It's their job to make tax filing as easy as possible – and it's in their interest to do so. So use the IRS's online resources, and call them if you need advice or an extension.
By taking tax filing seriously you will make life easier for yourself, and save time. Good planning will get your taxes filed efficiently this year – and every year.