Running through an initial tax reporting season is often a learning experience. When filing business taxes for the first time, try to get up-to-speed on new forms and instructions as quickly as possible. Should questions arise, don't hesitate to consult an accounting professional. Try to keep reporting requirements in mind and maintain important documentation supporting the formation of the business for tax season. Making sure taxes are filed correctly the first time will help increase efficiency in the future.
When Does a New Business Need to File?
Even if a business has not been operating for an entire year, a tax return must still be filed. Once a Taxpayer ID number is granted by the IRS, then a tax return should be completed regardless of the amount of profit made during the year. Partial year financial activity should be reported according to IRS instructions for each particular tax form.
Business Structure Affects Forms
Often, tax reporting requirements are one of many deciding factors when selecting a new business's organizational structure. Each separate structure comes with its own set of tax requirements. For example, a sole practitioner may be able to simply file Schedule C, Profit or Loss From Business, on their personal tax return. Alternatively, a Limited Liability Corporation (LLC) may be required to file a corporate or partnership return, based on its classification for tax purposes.
Research Filing Deadlines
Prior to embarking on the first tax reporting season, know the annual local, state, and federal business tax reporting deadlines. When the deadlines cannot be met, an extension can be filed, but estimated taxes owed must still be paid on time. If W-2s are distributed to employees, they must also be prepared and sent out by a certain date. For the most up-to-date information, check the IRS filing calendar for self-employed individuals and small businesses.
Line Up a Tax Advisor
Don't wait until April to engage a professional tax preparer. These individuals work under tight time frames and may not be able to take on another client at a late date. It's best to investigate and interview prospects as early as possible, prior to calendar year-end. Speaking with a tax advisor is often an integral step of the process when setting up a new company and provides the opportunity to establish a continuing business relationship during the startup phase.
Determine Required Backup Documentation
First-time filers may also need to devote extra time to report design. When reporting income and expenses for tax purposes, information must be organized into reports which mirror tax schedules. Prior to the start of tax season, take time to collect receipts, invoices and financial reports and sort them according to tax line item. Keep a list of all 1099s bank statements, and other proof of income expected from outside sources. If something appears to be missing, follow up on it as soon as possible.
Spending time to properly set up tax reporting procedures during the initial year of operations can reap great long-term benefits. With the assistance of an online cloud accounting system, the process of filing business taxes can be streamlined and computational errors will decrease. The data backup and security features of cloud accounting also ensure information will help you retain information for future reference when the next tax year rolls around.