Staying out of trouble with the Internal Revenue Service (IRS) should be a top priority for new entrepreneurs, and small business tax preparation is vital to make that happen. You can head off a lot of issues by taking simple steps to make tax filings a breeze. Adhere to the following tips in your business, and you'll spend less money with a small business accountant or save time if you plan to file your own taxes.
Tip #1: Keep Your Books Current
Bookkeeping is not an area of your business that you want to be slack in. One of the first independent contractors you should consider hiring when you make enough money is a bookkeeper, if you're unable or unwilling to do your own books. In addition to accurate financial reports that can give you information as to where your business stands, good bookkeeping makes filing your taxes much easier to do, because all of your financial data is in one place.
Tip #2: Obtain Personal Information from Contractors
The IRS requires you to file Form 1099 for all the independent contractors and freelancers you paid more than $600 to during the tax year. You'll need the current address and social security number or employment identification number of each contractor in order to complete the form. You'll save yourself a lot of hassle if you take care of this up front. Contact each contractor even if you paid them less than that amount, and enter the information you need for Form 1099 in your contacts software database or somewhere where you won't lose it. You can also send each contractor a W-9 to fill out, that will request the same information you need for Form 1099.
Tip #3: Give Former Employers Your New Address
If you left a job recently to become an entrepreneur, make sure that human resources has your current address to send your W-2 forms to. You cannot file your taxes without them, especially if you plan to file as a freelancer or independent contractor. If you don't get the forms by the end of January, before your personal tax returns are due, then contact your former employer to verify which address they sent the forms to.
Tip #4: Interview Prospective Accountants
Your financial situation may require you to seek the help of a small business accountant the first time you file your business tax returns. Don't wait until the last minute to find one. Get three referrals from other entrepreneurs, family and friends and contact each accountant. You'll get a sense of which ones are teachers, and which ones have little interest in helping you understand the tax laws that impact your business. It's better to have a teacher, because you may have to do your own taxes if you don't have enough money the next time around.
These small business tax preparation tips will help you to avoid audits from the IRS, and make tax filing season less overwhelming.
Daphne Mallory, Esq. is the co-owner of Mallory Writing Services and has written more than 100 articles helping home based business owners and entrepreneurs start and market their business. You can learn more about her here.