Top 5 Tax Questions for Entrepreneurs
As tax season gets underway and entrepreneurs begin their prep, plenty of questions come to the surface.
When do I need to file? How can I save the most money? Will hiring an accountant be worth the investment?
In this article, we will answer these questions and more so you can be confident you are filing accurately this tax season.
1. What are the due dates for my company’s returns?
As an entrepreneur, due dates for your company’s returns will vary depending on how your business has been organized.
If your business is structured as a c-corporation you will file using Form 1120. If your business has elected s-corporation status you will file using Form 1120S. LLCs may be classified as a disregarded entity, a partnership, or a corporation in the eyes of the IRS.
Generally, C-corps are required to file by the 15th of the fourth month following the corporation’s tax year. S-corps and partnerships are required to file by the 15th of the third month following the corporation’s tax year. Disregarded entities follow the filing of the owner of the entity.
1099’s & W-2
As an employer, you are required to report employee wages on Form W-2. This filing is required to be prepared and sent to your employees by January 31st.
Other payments to non-employees may be required to be reported on Forms 1099. Payments to independent contractors, payments to attorneys, payments of interest, or rent are just a handful of scenarios in which Form 1099 may be required. Filing due dates for Forms 1099 are dependent upon different factors so it is best to consult with a professional.
2. Are there any big changes in the tax code I should be aware of?
Due to the COVID-19 pandemic, the last couple of years have brought about many changes to the way businesses file their taxes. Changes to the tax code have likely affected your business.
One major change is related to the employee retention credit (ERC). Unfortunately, the employee retention credit program ended effective September 30, 2021, for the majority of businesses. However, a business may be able to retroactively claim the ERC. The IRS has provided a notice outlining conditions to avoid a failure to deposit penalty due to the abrupt end of this program as some businesses may have underestimated their tax obligations.
Another mentionable change is related to the utilization of net operating losses. Generally, losses generated in years after 2017 are limited to 80% of taxable income and can only be carried forward. The CARES act temporarily allows for losses generated in 2018-2020 to be carried back five years. Carryback of these losses may result in a refund of taxes paid previously – be sure to check with a professional on your unique tax situation.
Typically, 50% of business meal expenses are deductible for tax purposes. IRS Notice 2021-25 has provided for a temporary 100% deduction for business meals purchased from restaurants in 2021 and 2022. This increased deduction can save your business tax dollars.
3. How can I save money and reduce taxes?
Figuring out how to save money on taxes is every business owner’s top priority during tax season. Here are the two best ways to do it.
Stay organized with a platform like QBO or Xero
A common flaw for many entrepreneurs during tax time is a lack of accurate records. Expenses fall through the cracks and trying to clean up your books at the end of the year becomes a nightmare.
However, using a platform like Quickbooks Online or Xero can help you avoid this and save you money even though they come with a fee. These virtual bookkeeping platforms allow you to track all of your expenses, so when it comes time to make deductions, you’ll have everything in one place.
Logging your transactions throughout the year also makes year-end closing simpler, because hopefully, you will have caught any discrepancies ahead of time.
There are plenty of credits available for businesses. Tax credits are claimed by submitting the required form and will lower your tax bill dollar-for-dollar. The two credits you should be aware of are the R&D credit and ERC.
The Research and Development Tax Credit is meant to encourage businesses to invest in the creation or improvement of products and processes within your business. Please don’t hesitate to reach out to us if you think you may be eligible for this credit.
As mentioned earlier, there was a change made to the ERC inhibiting its use for the final quarter of 2021. However, it can still be claimed for the first three quarters of the year. Your business may qualify based on how many employees you have.
4. Is my product or service subject to sales tax?
Whether or not your product or service is subject to sales tax boils down to where you are conducting business. It varies by state and while most states do have a statewide sales tax, some do not. The world of sales tax is frequently changing and is nuanced based on a variety of factors relating to business line, services, location of employees, etc.
We can help you navigate sales tax laws and link you with a team of professionals so you can shift your attention to your business. As you can imagine, making sure you are placing the correct sales tax on your products or services correctly is crucial to limit your tax penalty exposure.
5. How much will it cost to have a professional handle my taxes?
Handing your taxes over to a professional is ideal. They will work with you to ensure you meet important deadlines and are claiming credits and deductions your business qualifies for. Accountants are well-versed in tax code, meaning they are on top of any changes or important information you need to know before filing. Your ROI for working with a tax professional will not go unnoticed.
If you’re interested in passing off your taxes to a professional, consider working with New Economy. We help small businesses and investor-backed startups gain control of their finances and make smart decisions.
Schedule a discovery call to discuss the cost associated with our services and to learn how we can help your business grow!