- By prepping for taxes all year long (meaning, keeping your stuff organized), the process can go much more smoothly
- Form W-4 has been redesigned—and that can mean some changes for your business
- List important dates in bold on your calendar
- Carefully go over your deductions and tax credits
With April 15 looming on the horizon, it’s time to stop procrastinating and get your tax stuff in order. (Big kudos if you’ve done so already!) For many, it can be a stressful process, but honestly, it doesn’t have to be. It comes down to being organized. And, if you’ve been wondering when your business should start prepping for this year’s tax filing, in a sense, the real answer is . . . all year long.
Is it a legal requirement to do that? No. Legally speaking, you just need to meet tax deadlines. But, the more organized you are throughout the year, the easier next tax season will likely be. And that’s huge—especially if you’re the type that scrambles to get everything done the night before on an annual basis.
Note: we’re not accountants or attorneys. So, if you have specific questions about your taxes, make sure to consult a professional. Meanwhile, here you’ll find some general tips.
Organized Record Keeping
Accuracy is at the core of tax prep. And that means accurately listing (and substantiating!) the following:
- Tax deductions
You’ve got some freedom in how you do this. You could manually enter information into a spreadsheet or into an accounting software system. You can prepare your own tax forms manually or through an online tax preparation service, or you can ship all off to your accountant.
But, at the core of it all is organized record keeping.
Knowing your records are complete and accurate can reduce extra stress since it’ll help you with both reporting and potentially benefiting from tax deductions.
To help keep it all on track, consider looking into some accounting software. Some choices to think about include Intuit Quickbooks and Freshbooks. If you’d like to scan and store your receipts for easy management, options include Expensify, Shoeboxed, and others. Also, if you’re looking for free ways to scan business documents, Microsoft Word has that feature.
New Employee Form
Names of government forms can be confusing, and now, Form W-4—the one that allows you to know how much you should hold back from each of your employees’ paychecks for federal taxes—has been renamed for 2020.
In the past, it was known as the Employee’s Withholding Allowance Certificate, but is now the “Employee’s Withholding Certificate.”
Technically, it’s the same form, redesigned. Here is an IRS spreadsheet that can help your company to transition to the new form.
Saving Enough Money for Taxes
If you’re a small business owner, then maybe you’ve been using the same bank account for personal and business reasons. If so, separating those accounts can make the process of tax filing easier and can create a cleaner audit trail, if needed.
Because nobody likes to scramble for money, especially on tight deadlines, make sure you’ve put away enough money for taxes. If your company is a sole proprietorship or partnership, you typically need to make quarterly tax payments if you’re going to owe $1,000 or more that year in taxes.
So, put these deadlines, bright and bold, on your calendar:
- April 15, 2020: estimated tax payment for income earned in January, February, and March
- June 15, 2020: estimated tax payment for income earned in April and May
- September 15, 2020: estimated tax payment for income earned in June, July, and August
- January 15, 2020: estimated tax payment for income earned in September, October, November, and December
Not sure how much estimated tax to pay each quarter? You can use IRS form 1040ES to calculate that. (Corporations and S-Corporations will have different dates and requirements.)
Three more notes:
- If you don’t make your quarterly estimated payments on time, you may have to pay a penalty
- April 15 is a double due date: your business will owe an estimated quarterly tax payment and, if you owe more money in federal taxes than what you’d paid in your quarterly installments, that amount is also due on April 15
- These quarterly payments only cover federal taxes. Be sure to check for your state and local requirements
Maximize Your Deductions
Just to refresh, a tax deduction (you may also hear it called a “tax write-off”) is a type of expense you can subtract from your taxable income before the amount of tax you owe is calculated. Not all expenses are considered tax deductible by the IRS, so you’ll need to verify which ones are, and take advantage of them.
What’s deductible may change from year to year, so it’s also important to keep up with changes that matter to your business. Some expenses are 100% deductible while others are only partially deductible.
Some small business tax deductions available in 2020 include advertising, business insurance, and vehicle-related expenses, and more.
As each year winds down, this can be a smart time to spend money in tax deductible ways (think: new desks and chairs for your employees) or, if you use a cash basis for your bookkeeping, to take advantage of what’s called the IRS Safe Harbor. This means you can prepay qualifying expenses up to 12 months in advance, which means more deductions. This could include pre-paying rent and lease payments, business insurance premiums, and more.
And one fairly recent development is affects first-year bonus depreciation, which is now at 100%. So, if you buy, say, an eligible piece of equipment for your business, you can now write off the entire purchase price in one tax year, instead of writing it off over a period of years. This helps your business benefit from the depreciation more quickly.
For home offices, if you’ve got an area in your home that is completely dedicated to your business (not a room where you also hold weekly sports get-togethers), then you may be able to deduct related expenses. There is a quick way to do this—$5 per square foot up to 300—and a more detailed way where you compare the size of this space to the square footage of your entire house.
Then there’s free shipping. According to the National Retail Federation, shoppers want items they buy online to come with free delivery. So, if you’re shipping goods to your customers and are covering the costs of shipping, those fees may be tax deductible.
To help, accountant software packages often guide you through potential deductions for your business. If any of them don’t seem accurate to you, consult an accountant.
Business Tax Credits
“Tax credits are offered to businesses as incentives for activities that benefit employees, specific industries and society at large. For example, businesses can claim tax credits for doing research and development (improving society/industry), providing benefits for their employees (enhancing people’s lives) and buying electric vehicles (fighting climate change).” (FreshBooks.com)
There also may be tax credits available to certain businesses in 2020. You could be eligible, for example, if you help your employees get childcare services—or if you’re developing a patent, employ disabled veterans, are renovating a building in a low-income community, and more.
In general, the sooner you start getting organized for tax time, the less stressful the entire process will be.
Shippo makes it easy to access your shipping expenses come tax time. Check it out today.