Simplify your tax season: 5 steps for business owners

February 14, 2024

By Bernadette Smith, Licensed CPA and EFund Expert Network provider

Tax season can feel a bit overwhelming for many business owners. It’s a scramble full of form-filling, document-hunting and nail-biting. But with a little preparation it doesn’t have to be this way.

I want to help make the filing process smoother for you this year. So, I’m sharing five key steps to help you stay organized, streamline your processes, and hopefully reduce your stress.  

Step One – Know your filing deadlines

Small business tax filing deadlines can depend on what type of business you have and how you’ve chosen to set it up for legal purposes.

  • If your small business is set up to be taxed as an S-corporation or a partnership, your tax return is generally due on March 15, 2024.
  • Sole proprietorships, single-member LLCs, multi-member LLCs taxed as corporations, and corporations that end their tax year on December 31 must file by April 15, 2024. This is the same due date as personal tax returns.

Small businesses usually have other tax-related filings they’re expected to complete, such as sales, payroll, and excise taxes. These have their own deadlines, so it’s important to keep all of them straight.  Check with each agency for filing deadlines. Keep copies of everything that was filed for your tax preparer.

Step Two – Get your bookkeeping in order

Without updated books, you can’t file your taxes.

Reconcile all your bank and credit card accounts. Reconciling is accountant-speak for verifying all the transactions in your books are matched against your bank and credit card statements. Reconciliations should be done for each bank and credit card account through year end. Write off any old and obsolete charges that have not been cleared.

Review your accounts payable and receivable reports and write off or follow up on any old outstanding balances.

Run a profit and loss and balance sheet report for the tax year. Double-check your accounts to ensure the expenses listed under them are classified correctly. Verify you don’t have expenses that should be categorized as assets.  If you do, make sure to flag them for your tax preparers review.

Step Three – Set aside enough tax money

One of the biggest surprises small business owners have when they file their first tax return is a tax bill. Without an employer automatically withholding taxes from your paycheck, it’s up to you as a business owner to figure out your tax liability, including how much you owe, and when and how to pay.

Some taxes will be familiar, like state or federal income taxes. If your business is classified as a sole proprietor, single member LLC or partnership, you are also responsible for self-employment taxes.

Self-employment tax is a required contribution from self-employed individuals to the federal government to fund Social Security and Medicare programs.

While W2 employees also pay Social Security and Medicare taxes, these costs are shared with employers as part of the Federal Insurance Contributions Act (FICA). Employees pay 6.2% of gross income to Social Security and 1.45% to Medicare in each paycheck, and their employers match these percentages, for a total of 15.3%. However, those who are self-employed are responsible for the entire 15.3% tax rate: 12.4% to Social Security and 2.9% to Medicare.

If you expect to owe more than $1,000 annually in taxes, you’re responsible for making estimated tax payments to the IRS every quarter. These tax payments include both income tax and self-employment tax.

If you’re not sure how much you owe in federal taxes, the general rule is to set aside 30-35% of your income. In addition to federal taxes, there are state and local taxes you might need to pay.  Work with your tax preparer to make sure you don’t forget any.

Step Four – File an extension, if needed

There’s no harm in filing for an extension if it buys you the time you need to file a complete and accurate return.

However, you typically need to file for an extension before the original due date of your tax return. You must make sure to pay your taxes on time, even if you’ve received an extension. The extension is only for filing the return, not the tax payments.

  • Extensions for small businesses set up as sole proprietors, single-member LLCs, and C corporations are for six months and run through October 15, 2024.
  • Extensions for partnerships and S corporations are for six months and run through September 15, 2024.
  • State rules for income tax extensions can differ from the federal rules, so check with your state tax agency before assuming that your federal extension request will cover your state return as well.

Step Five – Review and reflect

Lastly, after filing your return, review it and the steps you took to gather the information to complete it. Reflect on areas where you could make improvements to your processes for next year.

A few things to consider:

  • How do you feel about the organization of your books and records? Is it time to invest in accounting software?
  • Do you need to set aside a few more hours a month to do bookkeeping? If you don’t have the time or feel overwhelmed, perhaps it’s time to hire a bookkeeper or invest in training.
  • Did you owe a tax payment or have a refund that surprised you? Talk to your tax preparer about estimated tax payments and schedule more frequent check-ins to avoid surprises.

A good plan today will make next year even better.

If you want to make tax season less daunting, it’s essential to have a clear plan in place. By implementing these steps, you can simplify your processes, avoid surprises, ensure you are in compliance with tax laws, and have a solid plan for the following year.

About the author

Bernadette Smith is a licensed CPA and founder of the accounting firm, Bernadette Smith, CPA PLLC. Specializing in small business accounting, Bernadette has nearly two decades of experience providing full-service accounting, QuickBooks training, and CFO advisory services.

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