Like any company, small businesses also have to pay taxes. It cannot be apparent for those who do it for the first time due to the forms that must be completed and submitted to the Internal Revenue Service.
While it is suggested that you hire a tax preparation professional, if you decide to tackle your business taxes on your own, you will need to take steps to do it properly to avoid issues with the IRS. Here are four crucial steps you need to take to prepare your business taxes.
Review Your Financial Information
Ensure that information about your staff and contractors is always current and correct. Verify data such as the names of employees, social security numbers, addresses, and marital status. If you work with independent contractors, check their names, taxpayer identification numbers (TINs), and addresses.
Organizing Documents
Keep all the records and documents adequately organized to make the preparation process more efficient.
Keeping track of all the business documents allows you to keep up to date with controlling your expenses and financial statements. These details are helpful in case of an audit or demand.
In addition, the Internal Revenue Service (IRS) requires a person to submit documents supporting the deductions, income, and credits they need to report on their tax return.
List of primary records that you must keep.
- Deposits (cash and credit sales)
- Invoices
- Accounts payable and receivable
- Previous tax returns
- Canceled checks or other evidence of payments/ transferred funds
- Receipts
- Credit card receipts
- Bank statements
- Payroll records
- Any other document that serves as a support for your income, credits, or deductions that appear on your tax return
List of other documents that a person may need during tax season.
- Contracts that you may have signed with clients, employees, suppliers, and contractors
- Formation statutes of a commercial company
- Permissions
- Annual reports
- Health, safety, and any other similar documents
Consider Extensions, Deductions, and Refunds
According to the IRS, business administration costs can be deducted as long as they are “necessary and ordinary.” The agency defines such expenses as those every day and recognizes expenses within the choice of the business.
On the other hand, the necessary expenses are helpful and appropriate for the company. Some examples include the purchase of vehicles or other valuable equipment.
Look for Specialized Advice
Gathering all the required documentation while ensuring you follow all the steps correctly. This process can sometimes be overwhelming. Do not hesitate to seek the help of a lawyer or an accountant to advise you. External consulting can be the quickest and easiest way to avoid audits and save money.
Conclusion
According to the Issuer’s Report, which summarizes the results of two recent investigations that evaluate the effect of taxes on companies, the complexity of the corporate tax system is reflected in heterogeneous tax burdens that vary over a wide range.
According to recent research, firms that pay taxes and calculate the effective tax rate are not what the tax law says but what they produce and divide it between the utilities. The report explains that no company pays the nominal rate, and the vast majority pays below 30%, which is lower than the tax statute, and good news does not become negative either.
Also, the report states that smaller companies pay a higher tax rate because larger companies can invest in lawyers and accountants, allowing them to look for strategies to pay fewer taxes, and that great inequality makes small businesses, which are the vast majority, uncompetitive.
The report also indicates that the smaller companies are the ones that pay the most taxes; that is to say, the elasticity of the taxes, if they increase the tax rate, does not affect the profits of the companies because the companies manage to find ways of do not take away the profits.
In that sense, the report indicated that the estimate of the elasticity for the tax reform of 2012, which reduced the income tax rate and established the CREE tax to replace the para fiscal contributions and the social security contributions of the employees with less than ten minimum wages, indicates that, given a decrease in the TEMT, the profits of the companies responded positively and elastically.
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