top of page

5 Steps to Prepare Your Small Business Taxes + a 2021 Tax Checklist

Whether you are a solopreneur or managing a rapidly growing corporation, filing your small business taxes can be stressful. How do you know what you need and where to start?

When you’re organized and prepared come tax time, the entire process can feel significantly less stressful—and go much more smoothly. And we’re going to help you get there! Keep reading to learn five crucial steps to preparing your business taxes, including:

  1. Understand the types of business taxes

  2. Completing the necessary tax forms

  3. Keeping a calendar of tax deadlines

  4. Organizing your small business tax documentation (with a checklist!)

  5. Maximizing your return with tax credits and deductions

Understand the types of business taxes

All businesses must pay certain federal and state taxes. This depends on your type of business entity (sole proprietorship, S corporation, or C corporation), whether you have employees, and if you sell specific products or services. Let’s take a brief look at the most common types of small business taxes:

  • Income tax: Taxes paid on the profits your company makes

  • Estimated taxes: Quarterly tax payments

  • Self-employment taxes: Social security and Medicare tax payments for self-employed individuals

  • Employment taxes: Social security, Medicare, and federal unemployment taxes for companies with employees

  • Excise tax: Additional taxes on specific goods and services

Complete the necessary tax forms

Your business structure determines which tax forms you need to submit. You’ll need to report profits, losses, deductions, and credits to the IRS. Some of the most common tax forms include:

  • Schedule C: Sole proprietors should use this form to report profit and loss and file it along with their Form 1040.

  • Schedule K-1: Owners of S corporations and partnerships and members of multi-owner LLCs (all pass-through entities) must file a Schedule K-1 to report income.

  • 1099-NEC or 1099-MISC: Business owners and independent contractors use this form to report self-employment income.

  • Form 1120: C corporations must use this form to report income.

  • Form 1120-S: S corporations must file this form separately from their personal income tax return to report their income.

  • Form 1065: Partnerships file this information return to report their income, gains, losses, deductions, credits, etc.

Keep a calendar of tax deadlines

Business owners must stay on top of tax payment and filing due dates to avoid fines and penalties. Keep track easily by using a calendar with the following important dates:

  • January 31: Business owners must send W-2s to their employees and 1099s to their independent contractors. This is also the deadline for sending copies of these tax documents to the IRS.

  • February 28: Companies must file their information return using a 1099 or 1096 on paper. (If you file electronically, the deadline is April 1.)

  • March 15: Deadline for partnerships, S corporations, and multi-member LLCs to file their return.

  • April 15: Deadline for single-member LLCs, sole proprietors, and C corporations (that follow the standard calendar year for accounting) to file their return.

  • April 15: First estimated tax payment due

  • June 15: Second estimated tax payment due

  • September 15: Third estimated tax payment due

  • January 15: Final estimated tax payment due

When these dates fall on a weekend or holiday, returns and payments are due the following business day. You can use Form 7004 to file an automatic 6-month extension if you need one.

Organize your small business tax documentation

Below is a checklist you can use to ensure you have all the necessary information and documents as you prepare to file your business taxes.

General Information

  • Federal tax ID number

  • Social security number (SSN)

  • Previous three years’ tax returns (both state and federal)

Business Income Records

  • Accounting journals with a trial balance report showing the final amount in each account as of the last day of the year

  • Financial statements, primarily your balance sheet and income statement

  • Transaction documentation, including bank deposit slips, account statements, invoices received and paid, checkbook, credit card statements, and vehicle and mileage logs

  • Owner and partner distributions, including withdrawals, transfers, and payments made

Business Expense Records

Organize your receipts into the following categories:

  • Supplies: general office supplies

  • Recurring operational costs: Rent, utilities, and subscription-based services

  • Entertainment/travel: Any applicable business entertainment and travel expenses

  • Marketing/advertising costs: Expenses used to promote your business

  • Professional fees: Attorneys, consultants, accountants, bookkeepers, etc.

  • Sales tax returns: Include returns from all states in which you operate.

  • Insurance policy details: Individual and group plan documents, company vehicle policies, and any other insurance coverage documentation

  • Furniture, fixtures, and equipment: Include depreciation schedules for each fixed asset, as well as information on any disposed assets.

Employment Tax Documentation

Gather forms for all your employees, subcontractors, and other professional services, including:

  • W-9: Employee tax withholding certificate

  • I-9: Verification of employee legal work authorization

  • W-2: Wage and tax statements for each employee

  • 1099-NEC and/or 1099-MISC

You’ll also need to gather payroll information:

  • Payroll reports

  • Gross monthly payroll

  • Employee payroll withholdings

Home Office Information

If you operate your business from a home office, you can deduct your office space and utilities. Gather information for any of the following that applies:

  • Square footage of office space: Include the size of your office and the total square footage of your home.

  • Mortgage interest or rent paid

  • Utilities

  • Insurance policy

Maximize your return with tax credits and deductions

Get the most from your tax return (or at least minimize your tax liability) by knowing which business expenses are deductible (e.g., business meals, home office equipment and supplies, business vehicle use, etc.). Check out our list of 15 common small business tax deductions.

Additionally, don’t forget to research business tax credits available to you. These include:

Small Business Health Care Tax Credit

To qualify for the Small Business Health Care Tax Credit, your business must:

  • Have fewer than 25 full-time equivalent (FTE) employees

  • Pay an average employee salary of $56,000 per year or less (adjusted yearly for inflation)

  • Contribute at least 50% to your full-time employees’ premium costs

  • Offer Small Business Health Options Program (SHOP) coverage to all of your full-time employees

Investment Credit

Investment tax credits benefit businesses with expenses related to pollution control, energy conservation, green technology, and other types of economic development. Some specific investment tax credits include the following:

  • Reforestation Credit

  • Rehabilitation Tax Credit

  • Solar Energy Investment Tax Credit

  • Federal Business Energy Investment Credit

For example, solar and wind energy investments could make your business eligible for one of these credits.

Disabled Access Credit

The Disabled Access Credit benefits small businesses that have incurred expenses necessary to improve accessibility for those with disabilities. Your company is eligible if it:

  • Earned $1 million or less, and

  • Had no more than 30 full-time employees in the previous year.

You can take the credit every year that you have accessibility-related costs.

Work Opportunity Tax Credit

The Work Opportunity Tax Credit is available to businesses that hire qualified individuals from targeted groups who have consistently faced significant employment obstacles. This includes veterans, ex-felons, and those with disabilities.

Alternative Motor Vehicle Credit

If you purchased electric or hybrid vehicles for business use during the tax year, you could use Form 8910 to determine your Alternative Motor Vehicle Credit.

Be Prepared for Your Small Business Taxes

When it comes to filing and paying your business taxes, there is no such thing as being too prepared! The more organized you are, the smoother things will be when those tax deadlines come around. Not to mention, thorough recordkeeping and organization will help reduce your tax liability and maximize your return.

Are you confused or stressed at the thought of gathering all your tax documentation? We understand how challenging it can be to juggle the many responsibilities of a small business owner. First, take a breath—then contact Check & Balance at 603-505-2368 or schedule a free consultation! We’ll be happy to help you ensure your accounting and financial records are in order for tax day.

22 views0 comments
bottom of page