Posted on Feb 28, 2018

What You Need to Know When Filing Your Taxes as a Small Business Owner in 2018

It’s that time of year again: tax season. Instead of dreading it this year –  be prepared. In this post, you’ll discover what you should know about filing your taxes as a small business owner in 2018 for the 2017 tax year. Everything is listed in an easy-to-read and understand format with plenty of links to sources you’ll want to review and consult along the way.

Basic Steps to Take When Filing Your Taxes for Small Business in 2018

Step 1- Collect and Gather Your Financial Records

Throughout the year, you should have tracked or collected the following for your business:

  • Income and earnings by source
  • Operational expenses with receipts and invoices
  • Payroll and contracted services
  • Charitable donations

If you couldn’t keep your small business’s financial records organized and up-to-date throughout the year, then plan to set aside a few days if not weeks to collect and organize all this information. When filing your small business taxes, you should never estimate or guess any figures.   

If you haven’t acquired a reliable accounting software to track this information for you yet, then you should start using one immediately for the upcoming tax year. Read Tools and Tips for Managing Your Small Business’s Finances to learn more.

Step 2- Find the Right Tax Forms to Use and Fill Out

As a small business owner, it’s important to be aware of any tax forms that may apply to you. Here are a few tax forms that you’ll want to be aware of when filing taxes:

  • Schedule SE– If you’re self-employed, you’ll fill out and file the SE form, so you can calculate the Social Security and Medicare tax that you owe, since it wasn’t already deducted from your paychecks throughout the year.
  • 8829– If you used your home at least part of the time to conduct business throughout the year, then you might be eligible to fill out the 8829 form which will help you deduct some of the insurance, rent, or utility costs that you incurred.
  • 1040 or Schedule C– If your business is a sole proprietorship, you’ll fill out a 1040 form to report how much money you made or lost in your business each year.
  • 1065– If your business is a partnership or a limited liability company (LLC), you’ll file a 1065 form each year to report your business’s income and or losses to the IRS.
  • 1120– If your business is a regular corporation, you’ll fill out an 1120 form to submit to the IRS to report your income and losses.

You’ll also want to be aware of these tax forms, to ensure you’re issuing them and filling them out when they apply to you:

  • 1099-MISC– All freelance workers and independent contractors must be issued a 1099 Miscellaneous form from your business outlining how much money you paid them for their services for the entire year if it was over $500. You will also submit copies of these forms to the IRS.
  • W-2– Each full-time and part-time employee must be issued a W-2 form from your business outlining the taxes and amounts that were taken out of their paychecks, according to what they claimed on the W-4 forms you had them fill out when they were hired. You’ll also submit copies of these forms to the IRS.

Be sure to consult a licensed tax or financial professional if you’re not sure what forms apply to you and your business. Consult the IRS’s website where you will find every form and their applicable instructions.  

General Tips and Information for Filing Taxes as a Small Business Owner in 2018

To maximize the deductions your business receives, and to ensure your taxes are filed accurately, keep the following tips and information in mind.

Utilize Tax Filing Software

If you can’t hire an individual tax professional to help you with your taxes, use a certified, secure, and well-rated tax filing software. Such software services invest a lot in their security, compliance, fraud detection, and offer additional services in case your filings are ever audited by the IRS. Consider options like:

Terms to Get Acquainted With

Make sure you know what each of the following terms mean when you’re filing taxes for your small business, and whether they pertain to you and your individual tax situation.

  • Accrual Method
  • Audit
  • Cash Method
  • Deduction
  • Depreciation
  • Estimated Tax
  • Excise Tax
  • Extension
  • Exemptions
  • Indirect Tax
  • Nonrefundable Credit
  • Payroll Tax
  • Progressive Tax
  • Regressive Tax
  • Tax Credits

Consult the Glossary of Tax Terms published by the Organisation for Economic Co-operation and Development, and the IRS’s glossary of tax terms for more details.

Dates to Mark on Your Calendar

January 31: Deadline to mail W-2 forms to your employees, and to submit copies to the IRS. This deadline also applies to 1099 forms mailed to independent contractors where amounts are reported in “Box 7.”

February 15: 1099-MISC Copy B filing deadline.

February 28: 1099-MISC Copy A filing deadline- where you don’t have reported amounts in “Box 7.”

March 15: Deadline to file S-corp. and partnership tax returns including forms 1120, 1120S, and 1065.

April 17: Deadline for self-employed individuals, as well as those using forms 1040, 1040A, or 1040EZ. It’s also the last day you’re eligible to contribute to a traditional IRA, Roth IRA, Health Savings Account (HSA), SEP-IRA, or solo 401(k) for the 2017 tax year. And it’s the deadline for corporations to file their taxes.

May 15: Deadline for exempt or non-profit organizations to file their taxes.

Potential Deductions to Know About

Your small business may be able to claim deductions on its taxes for one or more of the following items in 2018 for the 2017 tax year:

  • Promotional products, services, and overall advertising costs.
  • Software and services used to build or maintain your business website.
  • Office supplies such as paper, ink, toner, etc.
  • Home-office expenses where you used your home at least half the time to conduct business.
  • Car-related expenses such as annual registration, repairs, gas, mileage, and insurance.
  • Business-related meals and entertainment expenses, as well as travel-related expenses.
  • Full cost of business-related equipment, hardware, vehicles, or property purchased or acquired, up to $500,000 deduction for the 2017 tax year. (This is the updated Section 179 deduction)
  • Contributions made to retirement plans.
  • Business-related insurance premiums and legal and professional services fees.
  • Medical insurance and medical-related costs.
  • Fees for licenses and annual fees for organizations such as your local chamber of commerce.
  • Donations made to charities and causes.

Recent Changes to Be Aware of When Filing Small Business Taxes

Per Diem Rates

If you compensate employees for lodging, meals, and incidental expenses while they’re traveling for business, then you’ll want to know the per diem rates for each tax year. Businesses can reimburse employees using standard per diem rates instead of using actual expenses, as per diem rates are adjusted to reflect adjustments for the actual cost of living. The new per diem rates were effective as of October 1, 2017. To learn more about the new per diem rates, read this Forbes article.

20 Percent Tax Deduction Benefits and Restrictions for LLCs and S-Corps

As parsed by a recent CNBC article, the new Tax Cuts and Jobs Act offers a 20 percent deduction for qualified business income from so-called “pass-through” entities, which include S-corporations and limited liability companies (LLCs). Under the previous tax code, income from these types of small businesses would “pass-through” to owners on their own personal taxes and were subject to individual income tax rates as high as 39.6 percent. But now, entrepreneurs are subject to a tax break on the income their small businesses generate. To qualify for the full deduction, however, an entrepreneur’s taxable income must be below $157,500 if they’re single or $315,000 if they’re married and filing jointly with a spouse.

Greater Retirement Savings Contribution Limits

This change applies to 2018 and is still worth mentioning here. If you contribute to an employer-sponsored retirement plan such as a 401(k) or IRA, you and your employees may be able to contribute more in 2018. Read all the details in this recently published Forbes article.

Higher Annual Gift Exclusions

For 2018, you can gift up to $15,000 per person per calendar year in cash or other property without creating any gift tax implications. This is known as the “gift exclusion.” Read more details in this recently published Forbes article.

As you file your small business taxes this year and next, keep this list of everything you need to know nearby. And, always consult a licensed tax professional and resources located on the IRS’s official website for reliable and accurate tax information.