Before we get into this article, it’s important to note that this article and WiseStamp do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any tax or financial transaction.
Tax season is a stressful time every year, but add in a global pandemic and shuttered businesses, and you’ve got a whole extra level of stress for the 2020 tax season.
Whether you’re a business owner or an individual looking to file taxes, don’t let the stress get to you. Aside from a pushed back deadline, the process of submitting your taxes hasn’t really changed this year.
Still, we’ve put together a helpful list of tips and reminders to get your small business through tax season successfully all the while maximizing your potential return.
Tax Deadline Extension
Normally personal and business tax returns were due on April 15th, but due to the COVID-19 pandemic, the IRS has extended that deadline until July 15th.
If you were already ready to submit for April 15th, good on you for being on top of your taxes. You should still keep reading just to make sure you’ve covered all your bases and claimed all your tax credits.
Haven’t even given your taxes a thought yet? Don’t worry. You’ve got time, but we still suggest not leaving it to the last minute. Remember, the sooner you file, the sooner you’ll get any refunds you’re entitled to, and an extra check worth hundreds or even thousands of dollars would certainly be helpful at a time like this.
Types of Taxes for Small Business
When we talk about taxes, it’s more of a blanket term to describe the different types of payments for different things. Below is a list of the main types of taxes to be aware of for your business.
This one is pretty straightforward. You need to pay taxes on any income, and this is applicable to any kind of business except for partnerships.
Usually, small businesses submit forms for estimated tax payments on a quarterly basis. However, the final date to file your annual income taxes is July 15th, 2020.
Keep in mind that this date may differ for your state taxes, so best to check with your local authority for this information.
This tax is for payroll deductions if you have employees. There are forms to fill out for their federally withheld taxes, unemployment, and Social Security and Medicare taxes.
Again, check with your state for documentation and information about employment tax.
If you’re a small business owner, then chances are you’ll need to file self-employment taxes. This is a tax on your net earnings from your business and is applied to your Medicare and Social Security.
Excise taxes are charged for purchases of specific things, like gasoline, alcohol, or tobacco. It also applies to the production or sale of specific items, certain activities, and the use of facilities or equipment. Not every business will have to pay excise tax, so it’s worth checking with the IRS if your business falls into this category.
How to Get Organized for Tax Season
In order to properly prepare for submitting your taxes, it’s important to have all the documentation you might need on hand so you don’t have to frantically look for it when it comes time to file.
The best practice to prepare for tax season is to keep anything you think might be relevant to your taxes in a document throughout the year. That way, when tax season rolls around, you don’t need to start gathering forms and you already have everything in one place.
Here are a few of the forms and documents you might need for your tax return. Keep in mind that every business and individual will have a different tax return including credits and deductions, so this list isn’t exhaustive.
- Copies of all your business’s financial records, including business expenses, invoices and receipts, and credit card statements.
- Your tax refund from 2018 (Form 1040-ES).
- Profit or Loss from Business form (Schedule C).
- Self-employment form, if applicable (Schedule SE).
- If you have business tax deductions or write-offs, you’ll need details to prove it, such as business meals, driving or gas costs, business travel, etc.
- Details on costs for your business assets, such as equipment or a company vehicle.
- Information about how you use your home for your business if you work from home.
- If your business has two or more owners, you’ll need to fill out a U.S Return of Partnership Income report.
10 Tax Credits and Deductions for Small Businesses
There are plenty of different tax credits you may be eligible to take advantage of. It’s not always obvious to know what is tax-deductible and what isn’t when filing your taxes, so it’s always best to do some research or consult with a tax professional before submitting in order to get the most out of your return.
Here are ten credits and deductions you can use to maximize your small business’s tax return. Note that this list isn’t exhaustive, so it’s best to check with the IRS for any other deductions that are relevant to your business.
1. Rent and Home Office Costs
If you’re renting a space for your business like a retail location or office space, your rent cost is fully deductible. Furthermore, if you have a dedicated space for your business at home, like a home office, then you can deduct some expenses, usually calculated based on the square footage of your home.
2. Travel Costs
Do you travel frequently for business meetings or to see clients? Flights, hotels, and transportation costs are fully deductible. Take a look at the IRS’s full list of deductive travel expenses.
3. Alternative Vehicle Costs
Being environmentally friendly can really pay off when it comes time to do your taxes. Purchasing a vehicle for your business that uses an alternative source of fuel can get you a credit of up to $8,000. However, this doesn’t apply to all electric or hybrid vehicles since they still use regular gas, so you’ll need to check if your vehicle qualifies.
4. Employee Benefits
It pays to treat your employees well, in more ways than one! Their salaries aren’t the only thing that’s tax-deductible. You can also get credits by offering benefits like education and retirement plans.
5. Employee Health Insurance
If you have a health insurance plan for your employees, you can get part of the total costs credited. The IRS will allow you to deduct up to 50% of the premiums you pay for health insurance. There are a few things you need to be eligible for this credit, for example, the health insurance plan has to be eligible, you have a maximum of 25 employees, and you’ve paid the average annual wages (subject to change each tax year).
6. Utility Bills
Anything you pay that allows you to run your business may also be deductible. For example, heat, water, electricity, as well as a landline or internet costs can be deducted.
7. Accessibility Spending
Whether it’s for an employee or for customers, if you’ve invested in making your business accessible to the disabled, then you can claim this on your taxes. This can include the cost of installing things like ramps, accessible fixtures in restrooms, and more. You can claim up to 50% of your costs, up to $10,000.
8. Employer-provided Childcare
If you pay for the childcare expenses of your employees, then you can claim up to 25% of it back on your annual taxes. You can also claim an additional 10% for childcare resource and referral expenditures. You can claim a total of up to $150,000 per year.
9. Work Opportunity Credit
Hiring employees who are often overlooked can also benefit you during tax season. If you hire unemployed or disabled veterans, ex-felons, long-term unemployment recipients, food stamp recipients, or family assisted recipients, then you can get a tax credit over a few years. See the full IRS list of the type of employees this credit qualifies for.
10. Research Expenses
If your small business involves research or development of new technologies, you may be able to claim related expenses. This credit is applied to environmental research, certification testing, applying for patents, improving manufacturing facilities, and more.
More Tax Tips for Small Businesses
There are a few things you can do to make tax season less stressful this year, and every year. If you prepare for your tax return all year long instead of only during tax season, then it’ll be easier for you to file taxes when the time comes.
These tips and reminders will help you keep on top of the 2020 tax season.
- When making a new purchase, remember that you can deduct a lot of big-ticket items, like vehicles, for your business.
- Check with the IRS every year for updated tax regulations, since it’s possible things have changed year after year. For example, what you can claim for business meal expenses changed in 2018, so it’s important to stay up-to-date instead of assuming something is tax-deductible and then finding out when the money is already spent.
- Keep track of your spending and income. If you can’t do this yourself, consider hiring a bookkeeper, even if it’s just part-time. The cost of having someone oversee your spending records can be worth it when tax season rolls around.
- Restructuring your business can impact your taxes. Partnerships, LLCs and LLPs, sole proprietors, and S corporations all have different tax implications, so it’s important to find the best one for your business.
- Make sure you’re making your quarterly estimate payments if it’s applicable to your business. If you need to make these payments and you miss the deadline, this can result in extra fines and a larger tax bill, so it’s not really worth putting this off.
- Use resources available to your small business. The U.S. Small Business Administration has a handy guide to help you stay on top of the tax responsibilities for your small business. It’s also further broken down by federal, state, and local taxes.
- If you think your tax return will be relatively simple and straightforward, then you can save costs by using DIY online tax software like TurboTax. If you’re self-employed, then consider looking at H&R Block. This is a good way to learn about doing your taxes on your own, and the software usually helps guide you on filing your taxes while also pointing out where you can claim extra credits.
Seek Professional Help
If all this information has you even more stressed out, then maybe it would be better to hire a professional tax expert or accountant for your small business.
DIY tax software makes it possible to file taxes on your own, but that doesn’t necessarily mean you should. By having a professional file for you or even just look over your refund, you might discover that there were other credits you’re entitled to that you weren’t previously aware of.
It’s worth doing a cost-benefit analysis of what your projected tax return might be and the time you’ll put into doing your taxes yourself. In the end, it might be in your best interest to hire someone to do your taxes.
Don’t Wait Until the Last Minute
When is the best time to file your taxes? As soon as you can.
Waiting until the tax deadline, even though pushed back this year, is never advisable. In case there’s an error or you need to refile, it’s a better idea to file earlier.
Besides, lockdown and quarantine is the perfect time to get to those long-avoided projects. So, if you’re looking for something to do other than cleaning out your garage, then get started on filing your 2020 taxes.
NOTE! WiseStamp do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any tax or financial transaction.