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.
Here are 3 tips to help with your first business tax return.
Make sure you carefully review the entire form. It can be easy to miss what you enter where, so make sure to completely review your business tax return to avoid mistakes. There may be questions about the nature of your business, how many years the business has existed, and the address. Make sure these are filled out as well. Your chart of accounts should have the correct income and expense categories both for your own business management as well as for filing your returns properly. Make sure that your records are complete, accurate, and compliant with the law.
Choose whether your returns will be based on the cash or accrual basis. When setting up your business accounting, you as the business owner must decide which accounting basis will better suit your needs. The difference is in the timing. For the cash basis, income is recognized upon collection, with expenses recognized when paid. For the accrual basis, income is instead recognized when earned, with expenses recognized when incurred. Even if financial statements are prepared with the accrual basis, the business tax return can be prepared on the cash basis. Factors in deciding which basis to use include uncollected income at the end of the year, and profitable years where the cash basis would result in less taxes.
Get a home office deduction. If you are the sole proprietor of your home-based business, you can deduct part of your residence as a business deduction. This should be done with care, however, because the area must be dedicated exclusively for use for your business. The square footage of both your entire residence and the area of your home office will need to be measured. The resulting percentage of your home office compared to your total residence area can then be used to determine the amount deducted in your home office expenses, including real estate taxes, mortgage interest, landscaping, general repairs, and in some cases, depreciation. Keep in mind that these deductions can be made only if there are profits they can be deducted from, but they can be carried over if the business is at a loss for the year and claimed later.
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.