It’s that time of the year again—tax season—when businesses scramble about trying to figure out what forms they need to fill out, so they don’t miss out on the deadline to file their federal income tax return. The deadline for now is April 15, 2019.
If you’re a first- time filer, here’s what you should know about tax filing for businesses. (Equations are also provided to act as visual aids.)
What portion of your business is taxed?
In short, the money a business generates, before taking into account the expenses, is revenue. The tax percentage is calculated from your existing revenue which is then deducted from your revenue as tax deductions.
In the case of multiple owners, the percentage of profits from the business is to be taxed for the particular owners. E.g. if you are two owners and the agreed upon contract states you share equal percentage of profits, and then you’ll be taxed on the 50% of the profit.
The self employment tax
Many self-employed businesses have to file for self-employment; the ones that are exempted are c and s-corps. This covers Medicare payroll and social security taxes of employers. The self-employer’s tax is 15.3% of the 92.35% profit. Consider the following example:
Businesses may take precautionary measures toward their taxes, by estimating and saving up for them.
This reduces considerable amount of strain when you are contacted by the IRS.
It’s also a good habit to have a monthly saving routine. It grants better surety for the payment of taxes, a smaller sum, monthly, is more doable than coming up with a large sum after 3 months.
If tax preparer isn’t available, better to start with 30% of monthly profit.
Deciding on the filer
Decide whether you will file taxes yourself or get a tax preparer on board. Most companies opt for professional tax experts to ensure accuracy and avoid penalties.
Staying Up-to-date with bookkeeping
Compile your last year’s bookkeeping before you file taxes:
- Categorize your expenses and income
- Address errors
- Review transactions by cross referencing your bank statements
Running and reviewing year-end reports
After completion of bookkeeping, review your end-of-the-year reports. You may ask your bookkeeper to send in the reports.
Totaling your car expenses for the year
Calculate total mileage and business mileage for the year. These will be used to deduce the deductible part of the auto expenses.
Then calculate the total automobile expenses of the year, car insurance, repairs, gas, car washes and oil changes. You will be canceling a percent of the above mentioned expenses.
Totaling your home office expenses
Calculate the size of your home office. This will be used to determine deductibles.
Use your mortgage, homeowners’ insurance, utilities, repair & maintenance costs, etc. to calculate your total home expenses for the year.
Totaling your home internet and cell phone expenses
Calculate your cell phone and internet yearly expenses, to figure out what percentage of the expenses is to be deducted.
Not sure where to start? Contact A&B Accounting and Business Solutions in Fort Lauderdale. They offer a free consultation and complete business consulting services and accounting solutions—including professional bookkeeping, tax, QuickBooks, payroll service and more.
Call 954-596-9966 or email firstname.lastname@example.org now.