Taxes are complicated but they don’t have to kill your holiday vibe. With a little guidance, tax season can be easy and stress free.
To help your business prepare for tax season, we’ve compiled the documents you’ll need to collect, the forms you’ll need to complete, and even a few tips to help along the way.
Collect Important Documents
There are a few important documents you should have been saving throughout the year. These documents might be in the form of invoices, cash or credit card receipts, account statements, or cash register receipts. In general, you want to save documents pertaining to your gross income, purchases, and expenses.
Here’s a breakdown of each category:
- Your gross income receipts track the income you received for your business. These might include Forms 1099-MISC from various entities that contracted you for work throughout the year. You might also have invoices, deposit information, or receipt books.
- If you buy and resell items to customers, you will want to keep track of your purchase receipts. These receipts might include raw materials or items you must purchase in order to create your product.
- Expenses include the costs that are necessary to run your business. For most entrepreneurs, this includes home office expenses, travel miles, and gift expenses. Once you have the important documents collected, these will help you fill out the required tax forms.
Complete Required Forms
As a freelancer, creative entrepreneur, or solopreneur, these are the tax forms you need to fill out.
Instead of using a W-2 like most employees, self-employed entrepreneurs will use a 1099. You can expect to receive a 1099 form from any entity that you earned more than $600 from. For any work you’ve done for any one client that equals less than $600, you won’t receive the form from the client. However, you’re still responsible for filling it out.
When you’re self-employed, Social Security and Medicare taxes are combined and called the Self-Employment tax. To file this section, you’ll need to file a Schedule SE or Form 1040. If your business operates globally, you’ll want to take a look at global tax laws. But as long as you’re working out of the U.S. you’ll have to pay state taxes along with your Federal income taxes.
State tax laws vary depending on the state. You can check yours here.
If you’re self-employed, you’ll also need to file a Schedule C or C-EZ in order to report how much money your business made or lost.
End of Year Tax Tips
You should determine your tax bracket and estimate your taxes owed as soon as possible. The tax bracket you fall into will be based on your income.
No matter your business or industry, it’s always a good idea to make estimated tax payments each quarter (April, June, September, and January). The best way to estimate your taxes due is to calculate them based on the amount you paid in previous years.
Additionally, it will help to know what deductions you’re eligible for. We mentioned above some of the expenses that could count as business deductions like home office expenses and travel costs. Remember, you must have documentation to back up any deductions.
Tax time can be a little less stressful if you properly equip yourself with information. First and foremost, it will be helpful to plan ahead as much as possible. Those important documents mentioned above will be a lot easier to use if you’ve been keeping them organized throughout the year. You don’t want to find yourself scrambling for every little receipt come April.
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Last update on 2020-03-19 / Affiliate links / Images from Amazon Product Advertising API
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