4 Tips to Remember When Filing Tax Return as a Small Business Owner
Despite the countless hours you’ve spent preparing your business tax forms (the good, the bad, and the ugly), once you’re ready to complete your first tax return, there’s one thing you’re probably not thinking about: ensuring you comply with the IRS.
To help small business owners ensure they comply with the IRS, we’ve provided a checklist of items to check off before you get ready to submit your tax return.
The checklist is written with both the “self-preparer” in mind, as well as the business owner who has opted to use a third party, such as a tax professional or financial software provider to help them with the task.
What Do You Need to Remember When Filing Your First Tax Return?
Tip #1: Be Sure to Choose the Right Accounting Basis
When you start your business, you have a choice to make: Do you want to use a cash basis of accounting (your books will reflect the income you’ve actually taken in), or an accrual basis of accounting (you will track the income your business should have taken in). This choice is called the accounting basis that you will use to report your business income and expenses to the IRS.
If you want to understand more about the differences between the two accounting bases, you may want to read our article on the topic here.
Understanding the basis that you need to use can become a little tricky, especially if you used the cash basis form with your previous business and you now want to switch to the accrual basis. The IRS has information about what you need to do if you want to switch.
Tip #2: Be Sure to Choose the Right Depreciation Method
Another item to choose is the depreciation method to use. Depreciation is the method used to determine the annual deduction a business can take on assets that are used in the business. This choice is also important since it will dictate the amount that you can deduct in the early years of using the assets.
Tip #3: Be Sure to Consider Your Non-Employee Compensation
Non-employee compensation includes wage-based compensation that you paid to an independent contractor or other service providers for work performed for your business.
Tip #4: Don't Forget About Automobile Expenses
When you own your own business, you can deduct expenses related to the use of your car. You can deduct:
A portion of your business-related driving.
Other car costs include depreciation, interest, taxes, and maintenance.
Even if you are not self-employed, you can still deduct the cost of using your car for business purposes, if your employer reimburses you for the costs.
The Bottom Line: Ironing Out the Kinks When Filing for a Tax Return for the First Time
Ultimately, even if you’re prepared to report your business income and expenses, you need to make sure you’re using the right accounting methods and depreciation methods. If you’re not sure if you’re using the right methods, it’s important to consult a tax professional (or your local IRS office) to learn more.
Are You Looking for Accounting Services in Denver?
Tottax is made up of a team of experienced CPAs, tax and business consultants who can help you manage your finances better. From corp tax returns to business tax filing services, we can simplify number crunching and the complexities of taxes for you. Contact us today to find out more!
