Simple Methods of Filing Your First Tax Return as a Small Business Owner in the USA

You must prepare to file your tax returns beforehand. These tax returns must be filed with precision and in a way maximizes business tax refund. Below are seven steps to follow when filing your first business tax return. Below are tips from our experts on how you can file your returns as a small business owner in the USA.

Study the Business Tax Return Completely

Before you file the tax returns, you must know the contents in the business tax return. Also, you should give answers to questions asked on the return. The questions are mainly about the nature of the business, the duration you have been in business and the business location. Therefore, your accounting records should have accurate categories of income and expenditure. This measure will assist you to run both your business and correctly file your returns. Additionally, your business should comply with the law.

Select a Proper Accounting Basis

You should choose an accounting basis that better suits your business. On a cash basis, income is realized when collected while expenditure when paid. However, under the accrual basis, income is recognized when earned and expenses are realized when incurred. Most of the creditors prefer the accrual basis financial statements. Therefore, you have the option to prepare your tax returns on a cash basis while your financial statements are prepared on the accrual basis. Start-up firms should use accrual basis since the additional expenses will be under deduction. After some few years, accrual basis will work against the businesses in the sense that tax payment will be high. So, make a wise decision on which basis you will use. Businesses that make larger revenues or inventories must select accrual basis.

Choose a Depreciation Method

You have to choose a suitable depreciation method. A new business should take a slower depreciation method. This route guarantees the availability of most deductions when the business is more profitable. Most booming businesses prefer to take the first-year write-off. This decision is because of the Internal Revenue Service giving businesses a first-year deduction of up to $100,000 for most furniture and equipment.

Remember Your Home Office Deduction

If you are a sole-proprietor in a home-based business location, you must include the portion of your residence as a business deduction. To succeed at your home-based business you should make sure the business residence is only used for business. Then again, you should calculate the percentage of business use in your residence. To accurately compute the percentages, you simply measure the square footage of the residence used for business and total square footage of the home. After which, you apply the resulting percentage to home office expenses to ascertain the amount to be deducted. In case the business makes losses, a home-based deduction is carried forward.

To avoid itemized deduction for business use of the home, you should subtract the percentage of real estate taxes and mortgage interest. If the profits remaining are sufficient, landscaping and general home repairs will be under the business and personal portion. Therefore, a tax deduction will be allowed for the business portion. For calculations on depreciation, you must allocate the rates of the home under the cost of the land and the building. Then again, you have to allocate the building between business and personal portions by the percentages you calculated earlier. Thus, the resulting depreciation deduction is written off around 40 years. Also, the actual annual home depreciation expense would be less than a few hundred dollars.

Remember Non-Employee Compensation

You have to do a review of the independent contractors you paid. This step is crucial as you must notify the government of their non- employee compensation. Ensure your employees receive a W-2form in which they state their income levels and due taxes. In addition, your contractors should collect Form 1099-MISC from you. In addition to that, the federal-state government must obtain a copy of the 1099-MISC form.

Partnerships and limited liability companies with more than one member are obliged to receive Form 1099-MISC. On the other hand, contractors who are corporations are exempted. You should make certain your contractors fill form W-9 to receive the crucial information.

Keep Track of Automobile Expenses

You have to maintain an auto log that will keep track of your business trips and record people you met. To ensure you properly file your business tax returns, keep the log for all auto expenses. This action is crucial as those who itemize their deductions will deduct transportation as a medical expense as well as a charitable contribution. In the business tax returns copy, you must state when your vehicle was placed in service and the amount of business. On top of that, you must include commuting and personal miles for each vehicle for the year.

Have a Plan for Paying Self-Employment Tax

If you are a sole proprietor, you are obliged to calculate the self-employment taxes. There are times the self-employment taxes are overlooked. April 15 is an essential date for tax payment. During this tax payment period balance for last year’s taxes is due as well as the first quarter installment of next year’s taxes. Therefore, you must monitor your cash flow to have the funds available. The seven steps are just but a few of the many items you must consider as you start your business. If you work with people who prepare business tax, consult with them to establish the format in which you should transfer business data for the preparation of your proceeds.

If you need more help, please get in touch with our experts. We are always ready and happy to help.