Business owners, tax season is right around the corner and although you may be dreading it, there are things you can do to feel better prepared. Here is your small business tax preparation checklist for 2022. Don’t stress, prepare!
- Your books
- Your structure
- Your due date
- Your income
- Your deductions
- Your home office expenses
- Your estimated quarterly tax payments
- Final thoughts
The following is meant to be a general list for business owners to reference. Not all items on this list will apply to your specific situation. Your accountant will provide you with guidance on the items needed for your business return.
1. Your books
Making sure your business books are reconciled and up to date is a crucial part of preparing to file your business taxes. Too many businesses stress over their books and spend loads of time catching everything up before filing. During this time the business suffers because its time is spent organizing the books rather than on growth activities.
If you already take advantage of an outsourced bookkeeper, then you can rest easy. Your books are being professionally managed. On the other hand, if you are managing the books and dreading the cleanup, consider reaching out to an outsourced accounting team. Liguori Accounting professionally manages the books for small business owners and files their taxes at the end of the year. Many business owners choose us for our comprehensive solution. Schedule a discovery call to learn more.
2. Your structure
At around tax time, small business owners tend to question whether they should be an LLC or S corporation. Business owners who find themselves growing beyond the one-person show might want to consider reaching out to a CPA to determine the benefits of converting to an S corporation or some other entity structure. Accountants can run the numbers on different scenarios and estimate the tax lability of converting to a different entity structure. Converting can help reduce tax liability but make sure to consult with a professional before making a change.
3. Your due date
Mark due dates on your calendar and plan to send information to your accountant a couple months in advance or even sooner. If files are sent too close to the due date or not at all, then an extension will be filed to avoid or minimize any penalties.
- S corporations or partnerships are generally due on March 15th. Extensions are for six months and run through Sept 15th.
- Sole proprietorships, single-member limited liability companies, and C corporations are generally due on April 15. Extensions are also for six months and run through Oct 15th.
4. Your income
Now it’s time to get into the nitty gritty. Generally speaking, your income is money you earn as a self-employed person from your business. However, there are other items included in income that people often forget. When you file your taxes, be sure your reported income includes:
- Employment income
- Personal services income
- Bank interest
- Capital gains
- Employee stock options, exercised or sold
- Investment income
- Income from rental property
- Government payments
- Termination payments
- Prizes and awards
- Crowdfunding income
- Foreign income
- Managed funds income
Review the IRS website for more helpful tax information. Learn more about how our small business tax solutions can improve your preparedness and reduce your anxiety around the tax season and year-round.
5. Your deductions
Deductions are typically the least understood area of taxes. People often get confused about what they can and cannot deduct, which can result in missing out on important tax breaks.
To qualify as a deduction, the expense must be directly related to earning your income; you must be able to prove the expense occurred, for example, with a receipt; and you cannot have been reimbursed for the expense. In the case of an expense that is both business and personal, you can only claim a deduction for the portion that is related to your business.
Deductible expenses can included:
- Vehicle expenses
- Travel expenses
- Self-education expenses
- Home office expenses
- Tools and equipment expenses
- Overtime meals
- Union fees
- Client bad debts
- Protective items, equipment and products
- Income protection
- Gifts and donations
There are more items that you may be able to claim as a deduction. Make sure you consult with a professional.
6. Your home office expenses
If you work from home, you may be able to claim deductions related to the cost of working from your home. These include items such as additional electrical, phone, and internet expenses. The home office deduction is only available to business owners who have a dedicated office space in their home primarily used for business purposes.
7. Your estimated quarterly tax payments
Moving forward, if you find out you owe a lot in taxes, make sure to ask your accountant about making estimated quarterly tax payments throughout the year. This will help drastically reduce the tax due at the end of the year.
After filing taxes, you will receive payment vouchers along with your return detailing the amount due per quarter. These payments are based on the business numbers used to file the return. Important note, if your business revenues fluctuate throughout the year, it might be beneficial to actively update those numbers each quarter. Liguori Accounting works with clients in our silver and gold tiers to review and update estimated tax payments every quarter. This helps to drastically decrease the amount of tax due.
Lastly, mark your business calendar with the due dates for the quarterly tax payments. See the IRS website for more information on estimated tax payments and how to pay.
- Q1 – April 15th
- Q2 – June 15th
- Q3 – Sept 15th
- Q4 – January 15th of the following year
The end of financial year can feel overwhelming. However, with some information, organization, and external support it can be a lot less daunting. If you missed out on some deductions last year, make a note of them. Consider speaking with our team so you can plan ahead. Do not over work yourself and burn precious time on the tedious accounting responsibilities of owning a business, let us work for you.