Category: Business Taxes

Ensuring your business operations run smoothly is an overwhelming responsibility as a business owner. While some processes can come more easily to you than others, accounting practices are often weak points in many businesses.

You may think doing your own business accounting will save you much-needed cash flow, but if you don’t have a clear understanding of accounting practices, you could waste precious time and energy doing your own accounting.

Business accounting is one of the most important aspects of running a successful business. Before deciding to do your own business accounting, you should ask yourself the following four questions. These questions may help shape your perspective on some more technical aspects of business accounting.

In the end, you may find hiring an expert CPA saves you time, money, and energy.

How many monthly transactions do you expect?

An essential question to ask yourself before doing your own business accounting is how many transactions you expect to make each month. Keeping track of monthly transactions may be easy if you’re in the early stages of establishing your business. However, as your business grows, it becomes more important to ensure you track every transaction accurately.

There are many options to consider in the world of accounting software, with QuickBooks being a common choice among small business owners. Before you begin researching all your accounting software options, keep the following considerations in mind:

• Accounting software typically comes with a monthly or annual cost. Run the numbers to determine whether it may be more cost-effective to work with a CPA instead.
• Setting up your accounting software profile takes time. Consider the amount of free time you have to set up your account and learn the ins and outs of an accounting software program.
• Accounting software can have many features that go unused by your business. While offering shiny bells and whistles is a great way to attract new buyers, the truth is you may be paying for features you don’t need.

Can someone else validate your calculations?

Ensuring your financials are accurate is vital to the health of your business. Before deciding to do your own business accounting, ask yourself whether you feel confident making all the calculations yourself.

While accounting software can help you, it’s critical to manually review your calculations before filing your taxes. Many Cook CPA Group clients use their own accounting software but send us their account reports to ensure everything is up to snuff before filing their taxes.

Everyone makes mistakes, and it’s essential to recognize that business accounting is complex. Having a second pair of eyes to validate your calculations and confirm your accounts are in order is a huge step in ensuring you file your taxes accurately and timely. Doing your own business accounting may not be a wise decision for you if you don’t have someone you trust to double-check your financials.

Do you have separate business and personal accounts?

Maintaining separate business and personal accounts can go a long way in ensuring your accounting process is seamless. And, if your goal is to make paying taxes as easy as possible, separating your business accounting function from your personal accounts is critical.

Before deciding to do your own business accounting, review your current process. If you currently mix your business accounting with your personal accounting, it may be wise to separate them. While an experienced CPA has the know-how to wade through mountains of transactions, the process may prove too time-consuming for you.

Opening a separate business account is the best piece of advice I can give any business owner interested in doing their own business accounting. Doing so can save you unnecessary headaches during tax season.

Are you familiar with business-related tax deductions?

One of the main arguments against doing your own business accounting is missing out on business-related tax deductions. With the potential to save hundreds if not thousands of dollars on your tax bill with business-related deductions, you must know the opportunities you can take to pay less in taxes.

Business deductions are an important component of any tax filing, and accurate accounting plays a major role in claiming the appropriate tax savings. No matter the size or years in business, every business can and should leverage deductions. But researching eligibility requirements and ensuring you can legally claim the deduction can become a complex process.

Many people who opt to do their own business accounting also prefer to file their own taxes. While this can streamline the tax filing process, you could potentially be leaving money on the table. We strongly recommend you consult with a trusted CPA for guidance.

Cook CPA Group has decades of business accounting experience. We encourage you to schedule a free consultation with us if you’re debating whether to do your own business accounting. We can guide you through the important steps you should consider and serve as a resource for any business accounting questions you may have.

Reaching the end of your first year in business is a significant milestone. Bringing your idea to life and achieving your business goals is no small feat. As tax season approaches, it’s just as essential to research and understand the tax-paying process for your small business as it is to hit your next big goal.

From organizing your business financial statements to understanding required tax forms, paying taxes during your first year in business takes careful planning. Luckily, Cook CPA Group is always in your corner, anticipating your accounting needs.

Use the information outlined below to create a checklist that will make paying taxes during your first year in business a complete breeze.

Business Taxes You Are Required To Pay Your First Year In Business

The first essential step in planning your tax filing for your first year in business is familiarizing yourself with the different business taxes you’re expected to pay. As a small business owner, there are several business taxes you are required to pay to the IRS that you may not be familiar with. Here are the five types of business taxes you should prepare to file in your first year in business:

Income Tax

Paying income taxes during your first year in business will be no different than paying individual income taxes. In most cases, you will pay both federal and state income taxes, depending on your business entity type.

Sole proprietorships and S corporations report business income on individual tax returns. Your tax bracket will determine the flat tax rate you will pay.

Conversely, C corporations pay taxes based on the business’s net income. At the federal level, the tax rate for C corporations is 21%. Currently, forty-four states impose a corporate income tax ranging from 2.5% to 11.5%. Visit the Tax Foundation’s website to find your state’s corporate income tax rate.

Self-Employment Tax

It’s common for business owners to consider themselves an employee of their company for accounting purposes. You are required to pay self-employment taxes if you earned $400 or more from business activities. That money will be taxed at a flat rate of 15.3% and is used to fund Social Security and Medicare benefits.

Employment Tax

You will be responsible for paying employment taxes if your business employs other individuals. Employment taxes include Social Security and Medicare, federal and state income tax withholding, and federal unemployment tax.

Estimated Tax

Businesses must pay estimated taxes four times per year if they expect to owe more than $500 in taxes as a C corporation or more than $1,000 as another business entity. Estimated taxes are due January 15, April 15, June 15, and September 15.

Excise Tax

Not every business is subject to excise taxes, but it’s critical to understand the goods and services that may apply. You should expect to pay the excise tax if your business sells certain products such as gasoline, cigarettes, or alcohol. Reach out to us for a comprehensive list of what goods and services fall under the excise tax rules.

Know Your Business Tax Forms & Tax Deadlines

As you gear up to pay taxes for your first year in business, it’s critical to understand the business tax forms you’re required to file and when they’re due.

Schedule C or Schedule K-1

If you run your business as a sole proprietor, you should file a Schedule C with your Form 1040 by April 15 to report your income. If you own an S corporation or a multi-owner LLC, you will file a Schedule K-1 by March 15 to report income to the IRS.

Form 1120 or 1120-S

If you own a C corporation, you will file a Form 1120 by April 15 to report income. An S corporation should use the similar Form 1120-S to file income separately from their personal income tax return by March 15.

1099-MISC

Form 1099-MISC is filed to report the self-employment income you’ve earned as a business owner or if you’ve hired independent contractors to perform business-related activities. The deadline to submit copies of this form to the IRS is January 31.

Form 1065

If you own a partnership, you will use Form 1065 to report information, including income, gains, losses, and deductions.

Form 720

If you determine your business is subject to excise taxes, you will use Form 720 to report it.

Sort Your Business-Related Paperwork

Paying taxes for your first year in business requires careful planning. But organizing all your paperwork and determining the documentation needed to support your tax filing can be overwhelming. That’s why we suggest you focus on three main areas: financial documentation, business-related expenses, and payroll and employee documentation.

Financial Documentation

• Balance sheet
• Income statement
• Bank account statements
• Credit card statements
• Invoices received from outside vendors
• Invoices paid for services

Business-Related Expenses

• Auto expenses (including mileage and maintenance)
• Office Supplies
• Operational costs (including rent, utilities, and maintenance costs)
• Marketing and advertising costs
• Expenses for professional services (including accountants, attorneys, bookkeepers, and consultants)
• Insurance fees (including property insurance, vehicle insurance, business insurance, etc.)
• Documentation for all equipment and assets purchased (including the depreciation schedule for each item)

Employment Expenses

• Employee forms, including:
  • W-9 and I-9 verification forms for each employee
  • W-2 Forms
  • 1099 Forms for contractors
  • 1099-MISC for fees for nonemployee payments
• Payroll forms
• Witheld deductions from payroll and other employee wages

Now that you know the necessary forms, due dates, and documentation needed to pay taxes for your first year in business, you’re ready to meet this tax season head-on. If you feel overwhelmed with the process, schedule a free consultation with us. We’ll help you navigate the tax filing process for your first year in business and beyond.

As the owner of an LLC or S-Corp, paying less money in taxes means you have more to spend on building your business to new highs. The more deductions your small business can take at tax time, the lower your tax bill will be.

While you may be aware of a few more common tax deductions your LLC or S-Corp can take this tax season, we’re sharing a list of lesser-known small business deductions you can use on your tax return to lower your taxable profit for the year.

1. Self-Employment Tax
2. First-Year Start-up Costs
3. Training and Education Costs
4. Professional Services Fees
5. Pass-through Entity Deduction
6. Independent Contractor Deduction
7. Charitable Contributions and Gifts
8. Association and Membership Dues
9. Retirement Contributions

Self-Employment Tax

The first tax deduction you should take advantage of this tax season is the self-employment deduction tax. Every year, you can claim 50% of what you pay in self-employment tax as a federal income tax deduction. These are Social Security and Medicare taxes you pay as a self-employed citizen.

Deducting the employer-equivalent portion of this tax is done with your adjusted gross income and only affects your overall income tax.

To read more about eligibility requirements, check out this helpful IRS website.

First-Year Startup Costs

The first year in business is one of the toughest. Luckily, there are tax advantages for your start-up LLC or S-Corp you should know.

Start-up costs, as defined by the IRS, are expenses your LLC or S-Corp paid or incurred for creating your business or researching the creation or acquisition of your business. To be eligible for this deduction, your LLC or S-Corp must meet both of these requirements:

1. You can deduct the expense if you paid or incurred the cost to operate an existing business if it is in the same field as the business entered into.
2. The expense is something you paid for or incurred before your business began.

To see a list of eligible start-up costs, visit this page.

Training and Education Costs

Building a successful small business requires constant learning and growth. Your LLC and S-Corp may save money this tax season by deducting the cost of business-related training and education.

Eligible training and education expenses must:

1. Maintain or improve job-related skills
2. Be required by law to keep your current salary, status, or job.

Note that the training you take cannot be part of a program that educates or trains you for a new business. All training, certifications, and education programs must enhance your current trade or business.

Visit the IRS guide on the topic for more information on filing requirements.

Professional Services Fees

Running a business often means hiring and engaging with professional service providers to help keep daily operations running smoothly.

Your LLC or S-Corp can deduct fees paid to accountants, lawyers, consultants, and other service professionals. However, the expenses must be directly related to your current business and not for work to acquire business assets.

Additionally, you can deduct the cost of hiring tax professionals like Cook CPA Group to prepare for and file your LLC and S-Corp business taxes. Save money on your small business taxes this year by contacting us today.

Pass-Through Entity Deduction

Pass-through entities, like your LLC or S-Corp, are uniquely qualified for up to a 20% deduction on net business income from federal income taxes. There are some limitations, including:

1. Your taxable income
2. The type of trade or business
3. The amount of W-2 wages paid
4. Unadjusted basis immediately after acquisition of any qualified property held by the business

If you are interested in reading more about what taxable income includes, please see this IRS article for a detailed breakdown.

Independent Contractor Deduction

With the upswing in workers taking to freelancing or independent contractor work, it’s only natural that your LLC or S-Corp hire a nonemployee to perform services for your business. If your business hired an independent contractor, the expense is deductible from your year-end taxes.

For more information on deducting independent contractor expenses, read our recent blog post, How to Account for Independent Contractors in Your Business Taxes.

Charitable Contributions and Gifts

Your LLC or S-Corp can deduct qualified charitable contributions if they are in the form of cash contributions. Otherwise, this deduction is more advantageous for an individual come tax time.

That being said, any expenses your LLC or S-Corp incurs for business gifts can and should be deducted. Exceptions to this deduction include:

1. Business gifts of more than $25 for every direct or indirect gift
2. Gifts expenses that include any incidental costs (like packaging and mailing)
3. Gifts with a permanent  imprint of the company’s name
4. Gifts meant for wide distribution, such as pens, bags, and cases

For more information on exceptions, read IRS Publication 535.

Association and Membership Dues

Many small businesses are not aware that the IRS allows tax deductions for membership or association dues that are required or directly related to your business.

For example, if you join your local Chamber of Commerce or pay dues for a similar business-related association, your LLC or S-Corp can claim the fee as a deduction.

These expenses can be claimed on your Schedule C form. Reach out to us today to ensure you never pay more than you have to.

Retirement Contributions

Saving for future financial needs is more important than ever. Make sure your LLC or S-Corp takes advantage of the retirement contributions deduction.

The IRS outlines a special rule you should use to calculate retirement contributions for yourself as a self-employed individual. Essentially, your retirement plan contribution is calculated based on compensation. To calculate this plan compensation, you should:

1. Deduct a portion of your self-employment tax, and
2. The amount of your retirement plan contribution

Once you have that number, you’ll calculate your own contribution and deduction.

Head over to the IRS’s guide on Calculation Your Own Retirement-Plan Contribution and Deduction, for a detailed overview of how to calculate your retirement contribution deduction

If you are interested in paying fewer taxes this tax season for your LLC or S-Corp, book a call with us today. Our team of expert accountants has decades of experience filing taxes and saving money for LLCs and S-Corps, and we’d be happy to help you take advantage of these lesser-known deductions!