Doing taxes is something everyone needs to do, but nobody wants to. In particular, SaaS and tech business owners cannot spend too much time on tax preparation since they have to address countless other matters.
Efficiency is critical for SaaS owners, and you can only be efficient if you already have the basics down. Besides using tools like online bookkeeping and tax services, you also need to organize tax-related activities in person. Get your taxes in great shape by covering all the bases. Here is a checklist of things to prepare for tax season.
Make a List of Deadlines for Tax-Related Actions
Many people equate April 15 with taxes since this is the deadline for most business entities. However, for some businesses, the deadlines can differ. The deadline depends on its business type and its legal designations. Also, it can have other tax-related tasks with deadlines.
Generally speaking, businesses set up as partnerships or S corporations have tax returns due on March 15. Meanwhile, sole proprietorships, single-member limited liability companies, or C corporations observe the April 15 deadline.
Collect the Necessary Tax Forms
The tax forms you need to submit depends upon the particular business entity you have. Typically, returns have a summary page, supporting schedules, and detailed attachments. For sole proprietorships, there is Form 1040, especially Schedule C, for reporting business income and expenses. Meanwhile, C corporations use Form 1120, AND S corporations use Form 1120-S, a special form from the IRS. A partnership will have to complete Form 1065 and individual partner information on Schedule K-1.
Collect Your Income-Related Business Records
Documenting your business income is vital. You need to show proof of the numbers you report, and the IRS has ways of independently verifying these. Compile gross receipts from sales of services or goods. If you receive goods as returns or have to issue refunds, have separate documentation for these. Finally, include the interest accrued from investment income or financial accounts in your business’ name.
Collect Records of Business Expenses
There are various tax deductions for businesses. However, it is on the owner to prove that the business qualifies for them. If you want to claim these benefits, you need to have at least the receipts of these expenses. In some instances, expenses like insurance, supplies, utilities, professional fees, and overhead costs do not need plenty of additional documentation.
Sometimes, however, you need to provide more details. Suppose you wish to count meals, transportation, health insurance, and furnishing costs for a home office as non-taxable expenses. In that case, you need to consult an accountant who specializes in business expenses.
Send Out and Receive Information Returns
Besides your business’ income and expenses, you need to report information like employees’ W-2 forms, parties they do official business with, or service fees for professionals the company hires.
Companies with independent contractors must also submit Form 1099-NEC. Also, in some cases, you don’t need to file information returns. For example, if you make payments to an attorney of less than $600, you do not need to file a 1099.
File for an Extension If Necessary
At times, you might need to file for an extension so you can make a complete tax return. Note, though, that you’re only filing for an extension on the documentation. You still need to pay your taxes on time.
If your business is a sole proprietorship, a single-member LLC, or a C corporation, you can file for extensions of up to six months, with a deadline of October 15. For S corporations and partnerships, the duration is the same, but the deadline is September 15.
Check with your state tax agency; some state rules for income tax extensions differ from federal ones.
Implement Changes for the Next Tax Period
Finally, use your current tax returns to plan for improvements you can make on the next one. For example, if you got a significant refund, cut back on estimated payments so you can put back a little more cash into your business.
Watch out for overpaying and underpaying as well. From the IRS’s standpoint, overpayments are not a problem. If your business is cash-intensive, though, large cash payments might mean you need to borrow more during the year. Underpaying is the more serious concern; if your underpayment is significant, you might end up having a lot to pay at once.
Figuring out taxes can be an involved process, but it is necessary. Prevent audits and excessive scrutiny from the IRS by filing everything accurately and promptly. Having an accountant or using online tax tools will help.
Get your finances in shape when you partner with A4E. We provide online bookkeeping and tax services for solo founders and businesses needing accounting services. Contact us today to learn more.