The Ultimate Small Business Tax Checklist
This checklist will help ensure that you pay your small business taxes correctly, get the most deductions, and file with plenty of time to spare.
Preparing and filing your taxes can always be stressful, but add in new tax laws, additional deductions, and the COVID-19 pandemic, and this year may seem even more overwhelming than years past. Take the stress out of tax time with Merchant Maverick’s small business tax checklist. With this checklist and tax guide (and your accounting software), we’ll show you how to be fully prepared for this tax season.
In this post, we’ll cover everything you need to help you prep for your tax filings. We’ll discuss how to get your accounting software up to date before filing, what accounting reports you’ll need to fill out your tax forms, important filing information, and more. We have also created a downloadable tax checklist to make sure you don’t overlook a single step.
Read on to learn some of our tax filing tips and tricks. Then download this checklist to get ahead of the tax game.
|Merchant Maverick’s Tax Prep Checklist (PDF)|
Small Business Tax Preparation Checklist: What Do I Need To File My Taxes?
Tax season doesn’t have to be hard or stressful. We’ve broken down the entire process into six easy steps to help you successfully prepare your small business taxes. Follow these steps and our free small business tax preparation checklist to help you stay on top of preparing and filing your small business taxes:
Step 1: Gather Personal & Business Information
Filing your small business taxes requires basic personal information. Make sure to have this information on hand when filling out your tax forms or written down for your accountant or tax professional if you’ve hired one to file your tax return. The information needed is pretty simple, but you must ensure that you (or your tax pro) input it correctly to prevent any delays with the IRS. Read on to learn more about the information you’ll need for your tax return.
Basic Personal Information Required For Taxes
- Legal name
- Social Security Number
If your legal name has recently changed (for example, following a marriage), ensure that your name has been changed through the Social Security Administration. To avoid a delay or rejection of your return, your name must match what’s on file with the SSA.
Basic Business Information Required For Taxes
- Legal name of your business
- Business address
- Federal Employer Identification Number (EIN)
Step 2: Know Which Business Tax Forms To File
|Business Type||Required Tax Forms|
|Sole Proprietorship||Form 1040 or 1040-SR, Schedule C Profit or Loss from Business, Schedule SE Self-Employment Tax, Form 944 Employer’s Annual Federal Tax Return, Form 940 Employer’s Annual FUTA Tax Return|
|Partnerships||Form 1065 Return of US Partnership Income, Form 940 Employer’s Annual FUTA Tax Return, Form 965-A Individual Report of Net 965 Tax Liability, Schedule E Supplemental Income & Loss, Form 1040 or 1040-SR|
|Corporations||Form 1120 US Corporation Income Tax Return, Form 940 Employer’s Annual FUTA Tax Return|
|S Corporations||Form 1120S, Form 1120S (Sch. K-1), Form 940 Employer’s Annual FUTA Tax Return, Form 1040 or 1040-SR|
|Limited Liability Companies (LLCs)||Varies, as LLCs can be taxed as a partnership, corporation, or sole proprietorship|
One of the most critical steps in filing your taxes is making sure that you complete and submit the correct forms to the IRS. The forms you need to file depend entirely on how your small business is structured: Sole Proprietorship, Partnership, Corporations, S Corporation, or LLC.
If you hire an accountant to do your taxes for you, he or she will be able to tell you which forms to file. Accountants often charge by the hour, so having the necessary information in place from the start saves them time and saves you money. Being prepared is the best gift you can give them (and yourself).
In addition to knowing which forms to file, it’s also essential to know your deadlines. While a Schedule C, for example, can be filed with your individual income tax return due on April 15, other forms (such as the 1120S for S-corps) have other due dates as set by the IRS.
Step 3: Use Accounting Software To Compile Income & Expense Records
Accuracy is vital when reporting your income and expenses. Avoid audits, penalties, and fees by accurately tracking your income and expenses. The easiest way to do this? Your accounting software.
Accounting software makes it easy to track your income and expenses throughout the year. You can use features such as receipt scanning and auto-syncing of transactions from your bank account to easily and accurately record income and expenses. These records can then be used when filing your tax return. Don’t have accounting software? Take a look at our picks for the best accounting software for small businesses, so you can be prepared for the next tax season.
When recording and reporting your income and expenses, there are a few things to keep in mind. First, make sure that your business and personal expenses are kept separate. The easiest way to do this is by maintaining separate bank accounts, but you can also use your accounting software to separate transactions. You should also categorize your expenses — a task easily handled through most accounting software programs.
When using your accounting software, it’s also important to determine what type of accounting you’ll be using for your business: cash-basis or accrual. This affects how you will report your income from year to year. With accrual accounting, a transaction will post as soon as it occurs, even if no money has exchanged hands. For example, a transaction would be recorded after an invoice is sent or a bill is received. On the other hand, you record transactions with cash-basis accounting once a bill has been paid, or a payment from a client has been received.
The method of accounting you use makes a difference when it comes to filing your taxes. Unsure of which is best for your business? Check out our article, Cash Basis VS Accrual Basis Accounting: What’s Better?, to determine which is the right choice for you.
Finally, make sure that you keep important documents, such as receipts, canceled checks, and bills, so you can be prepared if your return gets audited by the IRS.
Step 4: Run Financial Reports For The Year
Having your financial reports ready when it’s time to file your taxes will make the entire process faster and easier for both you and your accountant. Fortunately, if you have been using accounting software throughout the year, running financial reports is easy.
What reports should you prepare for tax time? Start with these:
- Balance Sheet
- Profit & Loss Statement
- Income Report
- Expense Report
- Inventory Valuation
- Total Cost Of Goods (COGS)
- Sales Tax Summary
- Payroll Summary
- Mileage Log
- Asset Depreciation Log
It is also important to note that even after you file your taxes, you must hold on to the records prepared above; they will be incredibly important if the IRS decides to audit you somewhere down the line.
How long should I keep my business records, you ask? Many people will tell you three years, but in some cases, the IRS can file an audit up to six years after a filing (or even an indefinite period, depending on the reason for the audit). When it comes to tax records, it is absolutely better to be safe than sorry.
Read our article on 12 Tips To Avoid A Tax Audit to learn more.
Step 5: Determine Your Eligible Small Business Tax Deductions
What business owner doesn’t like saving money? Keep more of your earnings in your pocket by taking advantage of the deductions that can reduce your taxable income — thus lowering your tax burden. One important thing to note here is that keeping track of your deductions throughout the year can simplify the tax filing process.
However, if you failed to track your deductions this year, take this time to familiarize yourself with standard business deductions, use any that apply to your business, and plan to track your deductions moving forward.
Small Business Tax Deductions Checklist
Some deductions that may apply to your business include:
- “Pass-Through” Income Deduction: This is one of the newest deductions outlined in the Tax Cuts and Jobs Act. Qualifying small businesses may receive an income reduction of 20%. Talk with your accountant or a tax professional to find out if you’re eligible for this deduction.
- Home Office: If you have a dedicated space in your home that is used exclusively for business, you may qualify for the home office deduction. You can deduct a portion of your expenses, such as utilities, insurance, and repairs. Or you could opt to use the simplified deduction of $5 per square foot up to 300 square feet.
- Rent: Rent payments for your commercial space can be deducted on your tax return.
- Advertising & Marketing: Not only does advertising and marketing bring in new customers (and more revenue), but these expenses are fully deductible come tax time.
- Vehicle Expenses: If you use a car or truck for your business, you can deduct this expense on your tax return. You can opt to itemize your expenses (think gas, maintenance, and insurance), or you can take the standard deduction at the rate set by the IRS. Learn which mileage deduction method is best for your business.
- Supplies: Office supplies and other supplies used to operate your business are deductible expenses.
- Software: Business-related software, including your accounting software, can be written off on your tax return.
- Employee Expenses: Employee wages, bonuses, benefits, and educational expenses are all deductible.
- Insurance: You can write off business insurance premiums as well as health insurance premiums if you’re self-employed.
- Travel Expenses: If you travel for business, such expenses as your transportation and lodging can be deducted on your business tax return.
If you received COVID-19 relief through the Economic Injury Disaster Loan (EIDL), the EIDL grant, or the Paycheck Protection Program, the good news is that the funds you received are not taxable. Even better, you can write off eligible expenses paid for using your grant or loan funds. This includes payroll expenses, rent, employee benefits, and more. Learn more about how PPP loans and EIDLs affect your taxes.
These are just a handful of the deductions that can help reduce your tax burden. Check out our complete list of small business tax deductions to learn more about how you can save money this tax season. You can also maximize your deductions by talking with an accountant or tax professional.
One last thing to note is to make sure that you keep all of your receipts and records to be able to back up these deductions in the event of an audit. And while you’re saving on your tax return, don’t forget to learn about the employee tax retention credit and see if you qualify for an ERC refund.
Step 6: You’re Ready To File Taxes!
If you are filing your taxes yourself, it is incredibly important to do your research and take advantage of every resource possible — including your accounting software.
Most accounting software companies offer some degree of tax support. Read our guide, The Secret To An Easy And Stress-Free Tax Season For Your Business, to learn which tax forms your software supports.
If you’re new to taxes, check out our post, Filing Small Business Taxes For The First Time? Here’s Everything You Need To Know. This guide helps take the stress out of filing taxes for the first time, and you’ll be cruising along like a tax pro in no time!
Getting Started With Our Small Business Tax Checklist
Tempted to wait until the last minute to file your taxes? Don’t wait — be prepared, file your taxes, and head into the new year with a focus on other aspects of your business. Once you’ve poured through the information in this article, download our business tax prep checklist. This checklist can help you make sure you have everything you (or your accountant) need to effortlessly file your taxes. Good luck!
|Merchant Maverick’s Tax Prep Checklist (PDF)|