You’ve started your own business, and now it’s time to file your first tax return. Even if you hire a business tax preparation specialist, you will need to have your files in order and make some decisions on how you want to file your return.
In continuation from last week’s post, here are 3 more tips to help with your first business tax return.
Figure out which depreciation method you want to use. The IRS allows a deduction in your first year of up to $100,000 for most equipment and furniture purchased for your business. The alternative is writing off those costs over 5–7 years. Most business owners would choose to take this write off in the first year. However, the deduction is only available if you have the profits to deduct it from. It can be carried forward to profitable years. The slower depreciation could be beneficial for early-stage companies that will want to take advantage of other deductions when the company is more successful and in a higher tax bracket.
Make sure to deduct your automobile expenses. Expenses from automobiles can be quite high for businesses. Business owners should keep logs on when and where they traveled, who they saw, and the business purpose of the trip. You can also keep track transportation that will be itemized for medical expenses and charitable contributions. Your business tax return will have a section for when your vehicle was placed in service, and the amount of miles for business, commuting, and personal miles used by each vehicle for the year.
Don’t forget about self-employment tax. Self-employment tax is the full amount of social security and medicare taxes that that self-employed individuals must pay. (Usually, this tax is divided among an employee and business.) The self-employment tax can be a significant portion of your total tax bill. Don’t forget to calculate these when you pay quarterly estimates on your total taxes. When taxes are due in April, your balance is due not only for the last year’s taxes, but your first quarter installment of the current year’s taxes as well. Make sure to monitor your cash flow so that these funds are available.
If you need help with setting up your business accounting or completing a tax return, our experienced tax professionals can help. Visit us today at businesstaxpreparation.com for more information about our tax preparation and accounting services. Email us at info@businesstaxpreparation.com or call (866) 676-9417 or to receive a free, no obligation consultation.