Starting the Startup: Preparing Your Small Business for Tax Season

Preparing your small business for its first tax season can be a real challenge. As a new small business owner, you wear many hats—and one of them is oftentimes an accountant. Trying to find the time to complete your yearly taxes between day-to-day operations isn’t easy and can take a lot of preparation, especially if it’s your first time doing so. Here are 5 tips to assist you in being better prepared for your first April 15th deadline.

5 Tips for Tax Season

Separate your personal bank account from your businesses bank accounts

Whether you’re running from a dedicated office space or just a home office, having a separate business account is important for many reasons, but especially important for tax purposes. Keeping a separate business bank account with all your business-related financial transactions provides a clear trail of business revenue and expenses. This makes it easier to run your business, submit your taxes, and provide a clear path in the event of an audit.

Take a look at Radius Bank’s small business Tailored Checking account. Benefits include 0.75% APY on balances of $5,000 & up, unlimited transactions, mobile check deposit, free ATM usage worldwide and the ability to bank anywhere with their online and mobile banking platforms.

Woman working through tax papers

Familiarize yourself with the forms you’ll need

You can’t file your taxes correctly without the right form, so identifying the proper tax documents you’ll need is one of the first steps that any small business owner should take.

You can’t file your taxes correctly without the right form, so identifying the proper tax documents you’ll need is one of the first steps that any small business owner should take.

The type of form you require will depend on the nature of the enterprise you run. For example:

  • Sole Proprietor: Attach a Schedule C form to your personal income tax return, oruse a 1099-MISC
  • CorporationUse a 1120 form
  • S Corporation: Use a 1120S form
  • Partnership: Report expenses, income and losses on a Form 1065

Gather all financial documents you’ll need

The amount of information you need to complete your tax return can be pretty extensive. If everything you need is on-hand before beginning, you can make the process less time-consuming. Look below at some of the most common documents you’ll need to track down before filing:

  • Bank and credit card statements
  • Payroll documents
  • Partnership agreements
  • Asset purchase details
  • Accounting documents
  • Last year’s business tax return (if applicable)
  • Depreciation schedules

Make a list of expenses and income

If you run a small business, be prepared to complete a thorough breakdown of all expenses and income associated with your company.
For expenses, typical items that must be accounted for include:

  • Employee wages
  • Office rent or a portion of the rent or mortgage of your home
  • Fees paid to professionals such as your accountant
  • Payment to contractors (Form 1099-MISC or 1096)
  • Insurance premiums
  • Advertising
  • Phones and communication devices
  • Transportation and travel
  • Office supplies and equipment
  • Computers and internet fees

For income, typical items to include are:

  • Checking and savings account interest (Form 1099-INT)
  • Sales records
  • Gross receipts
  • Returns and allowances
  • Other unclassified income

Assess your possible deductions thoroughly

If you can prove that an expense is relevant, you can deduct it from your taxable income—lowering your income, which lowers the tax that you owe. Small business owners are entitled to a variety of deductions: furniture, supplies, insurance, software, employee reimbursement, and some startup costs are just a few of the dozens of possible deductions a business owner can take.

If you research them thoroughly and employ them correctly, these deductions can save you a substantial amount of money by lowering your tax bill—money that can then be invested back into your business to help it grow.