Small business expenses need to be recorded properly in order to file taxes correctly. To do this, you need to have an understanding of your obligations when filing and a good understanding of the process you need to go through when filing. With a few simple steps carried out throughout the year, tax time will be easier and less stressful.
Step 1: Look Up Your Tax Bracket and Required Forms
To know what is expected of you at the end of the year, you need to know what bracket you fall into and the forms you'll be required to file. You can find your tax bracket on the IRS and your local Department of Revenue site under business status and usually based on projected income for that year. You can also find what forms will be required of you. Print the information you find for quick reference throughout the year to ensure you've recorded the information needed for end of the year reporting.
Step 2: Keep Good Records
You should be using a financial software specifically designed for small business. You can also choose a customized version depending on whether you sell products or professional services. This will help you record your sales and expenses accurately and pull reports that give you information in a quick glance. Many financial software programs also include information about the types of forms you'll be required to submit. If you have employees or use independent contractors, you'll be required to send out 1099's and submit a summary form with your taxes.
Step 3: Compile Expenses
At the end of the fiscal year, you need to compile your expenses into general categories as they'll need to be claimed on the appropriate form. The most common business form to use is the Schedule SE. This is where you itemize your expenses into general categories. These categories usually include things like: payroll, office supplies, utilities and rent or lease of your business property.
Step 4: File out Expense Forms
Once your expenses are compiled, you can fill in the Schedule SE by going down the line and inputting your information. If you get stuck on a section, consult with a tax advisers to ensure it gets done right. Double check all of your numbers and calculate your totals at the bottom. You then input the total expenses as needed on your general tax form where it will be compared to your income.
The key to claiming small business expenses is to key accurate records throughout the year. If your records are accurate and you can pull quick reports for an overview of those expenses, claiming them on your tax forms can be stress free. When you know your tax forms are filled out correctly, you can be sure you submit accurate information and avoid delays in the processing of your forms. You also avoid a potential audit, which can be a mess to deal with.