It’s officially tax season! If you weren’t one of the first to file your small business taxes, you should be preparing to do so now.
Small business taxes in 2020 might be a little different than in previous years. From disrupted business operations to a few unique financial changes, there might be a few points of confusion you’ll get stuck on. As you gather your documents and get ready to file, here are a few tips to keep in mind.
1. Rely on a professional
You might have been able to complete your personal taxes just fine on your own, but business taxes are much more complicated. Small business owners—especially ones new to entrepreneurship—should hire an accountant or tax professional to walk them through the 2020 tax filing process. They’re pros who deal with the ever-changing complexities of tax filings every single day, so you don’t have to!
An accountant will ensure you’re filing correctly according to your business’s classification, since every classification has slightly different tax rates and rules. Beyond that, a tax professional might save you money by helping you find all of the tax credits and deductions you’re eligible for or might overlook on your own.
After your accountant has helped you file your taxes this year, they can also make sure you’re set up for the coming tax years with better tax tips and preparations.
2. Consider COVID-19 finance items
Some of the biggest changes 2020 had for small businesses related to your finances. Some COVID-19 legislation introduced tax policies, loans and stimulus payments that might alter your 2020 taxes in some way.
Make sure you speak with your accountant about these potential tax issues and credits:
- EIDL and Paycheck Protection Program Loans: The CARES Act introduced the Economic Injury Disaster Loan (EIDL) and PPP loan program for small businesses to mitigate some COVID-19-related losses. If you were awarded either of these funding options, you might qualify for forgiveness, which would make those funds non-taxable. However, the forgiven funds might alter some of your expense deductions.
- Small business tax credits: Multiple tax credits were made available to businesses last year, including those for employee retention and sick leave. Discuss these tax credits with your accountant to determine whether you’re eligible.
- Tax deferrals: COVID-19 legislation allowed some businesses to defer portions of their Social Security and payroll taxes. If you participated in these deferrals, you’ll need to report the amounts deferred and should craft a repayment plan with your accountant.
3. File early
Tax filing might not be top of mind, but it is something every business should strive to do early. Filing as early as possible ensures you’ve submitted everything by the deadline and allows you to avoid late filing and billing fees.
Additionally, by filing early, you can use your tax information to prepare for next year as soon as possible. This is particularly important for new business owners who might not have used tax breaks to their fullest extent last year.
4. Invest in tax preparation tools
Bookkeeping is an essential activity made easier by accounting and payroll software. Not only is this important for the day-to-day management of your business, but it also makes tax preparation much easier each year.
Many business owners find that the cost of investing in this type of software pays off in the end, both for its convenience and the peace of mind it offers. By using tools to keep track of revenue and expenses, you’ll ensure your tax information is accurate and that it’s easier to file.
If you need assist identifying a qualified tax professional, Tenet Financial Group can provide a recommendation from one of our hundreds of tax partners across the U.S. Just send us an email with the subject line: CPA recommendation request.
*Tenet Financial Group does not provide tax, legal or investment advice. All decisions concerning these matters should be made in conjunction with your professional advisors.