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Assign the position to an accountant: It may be in your best interest to hire a tax specialist if you don’t have a good understanding of small business finances and taxes or what small business tax deductions are available. They can filter through and summarise all of the information needed to pay your taxes in just a few hours, allowing you to focus on your business’s day-to-day operations. Keep in mind that planning and gathering as much information as possible before meeting with your accountant will save you a lot of money. Because each small business is unique, the information required may vary. Still, it will typically contain gross income, client invoices, records of goods sold, salaries, sales records, previous year’s tax return (if relevant), and receipts for office supplies.
Suppose you’d instead handle your taxes yourself rather than hire a CPA. In that case, you can take tax preparation classes or look at internet resources to assist you in understanding the tax forms you’ll need to complete your business taxes correctly.
Earned income, premium tax credits, refundable credit, filing status, earned income tax credit, and how an IRA, health insurance and child tax credit can affect your return are all concepts that can be defined using online resources. Let’s go over the top five documents you’ll need to file your tax return with your accountant.
A cash flow statement, a balance sheet, and an income statement are examples of financial statements describing a company’s financial health. The income statement, also known as the profit and loss statement, is crucial to your accountant for tax purposes. Still, he or she will also likely ask for a summary of your company’s assets and costs.
A capital asset is anything that will help your company for more than a year. It’s common for a company to have a large number of assets. When support or assets are sold, they must be classed as a capital asset, depreciable property, commercial real estate, or a customer-facing item such as inventory. A capital gain or loss occurs when a capital asset is sold. If your business exchanged, bought, or sold any tangible or intangible capital assets throughout the year, you must report these transactions on your tax return.
Use of a vehicle
You may need to use your automobile for business purposes on occasion. You can deduct a percentage of your vehicle’s operating expenditures as a tax deduction if you do so.
You can calculate the deductible component of your auto expenses in one of two ways, according to the IRS:
- When you use the actual car expenses technique, you begin by adding up all of your vehicle operating expenses, such as loan interest (or lease cost), gas, repairs and maintenance, insurance, and so on. Next, subtract any kilometres you drive purely for business from your total mileage. Then take that proportion and apply it to your operating costs. This is the amount you can deduct.
- The more straightforward way allows you to apply the current IRS-mandated mileage rate to all business miles driven in the calendar year. For the 2019 tax year, the standard mileage deduction for business use is 58 cents per mile.
To apply either methodology, you must keep track of all business mileage in a car record. This might be as simple as scribbling miles, dates, and descriptions in a notepad, or it may be as complex as using software to keep track of your mileage. Whatever way you choose, be sure to bring a copy with you to your accountant when it comes time to file your taxes.
Expenses for a home office in a nutshell
You can generally claim home-office costs if you utilise a portion of your house entirely for business or if you meet with clients or customers in your home office regularly. A proportion of your house insurance, mortgage interest (or rent), utilities, repairs, and maintenance are included in these costs. However, your home must meet two criteria to qualify as a deduction: it must be the primary location of your business, and you must use the portion of your home that you intend to deduct exclusively for that business.
Mortgage interest and property taxes are reported on Form 1098.
If you claim a portion of your primary or second home for business purposes, you must decide which amount is for business and personal use. Consider this: if your home office space makes up 15% of your total living area, you can deduct 85% of your house mortgage interest and write off the remaining 15% as an item of business expenditure. In this case, your mortgage company is likely to have sent you an IRS Form 1098 at the end of the year, which details your mortgage interest and property tax payments for the year.
To end with, As a small business owner, determining your tax due, filing requirements, and how to submit a federal income tax return can be difficult. That is why many business owners enlist the assistance of an accountant. Furthermore, delving deeper and obtaining some personal knowledge about tax filing and small business taxes can make the entire process run more smoothly and be less confusing. Keeping good records all year, recording transactions, and preparing the necessary paperwork to file your small company taxes throughout the year may make the entire process of completing your taxes much more accessible and save you many hassles when tax season arrives. I hope that this blog was helpful and was worth your time.