The Entrepreneur’s Ultimate Checklist for Filing Taxes
If you are an entrepreneur who operates your own e-commerce website, manages your own business website, hosts a website with a monetized blog, or has had strong earnings from other sources in 2018, now is the time to get ready and be prepared to file your taxes at the beginning of next year.
You don’t want to be among the estimated 40 percent of small businesses or entrepreneurs who accumulate around $845 on average per year in penalties because they are unsure of how to properly file taxes.
Filing taxes as an entrepreneur or small business owner can be daunting and confusing if you don’t know where to start. So, here’s a list of things you’ll want to do so you can get started with filing your taxes for 2018 the right way.
Know Your Tax Deadlines
As you prepare to file your taxes, it’s imperative that you first know what your deadlines are according to the IRS as they relate to your business or operating structure. Here are some of the most common IRS deadlines entrepreneurs should be aware of for 2018.
- Tax returns for Sole Proprietorships and Single-Member LLCs are due by April 15, 2019.
- Partnership tax returns, for each partner, are due by March 15, 2019, as well as for S-Corps.
- Tax returns are also due on April 15, 2019, for C-Corps if their fiscal end-of-year is on December 31, 2018. Otherwise, it is the fifteenth day of the fourth month after the end of its tax year.
To make sure you understand and remember the deadlines that apply to you, check out the IRS Tax Calendar for Businesses and Self-Employed. You can use their calendar tool and set up reminders. And if you need to, you can receive an extension. But you don’t want to end up paying fines simply because you weren’t aware of your tax deadlines.
Understand Your Responsibilities
As an entrepreneur, it’s important to understand what your overarching responsibilities are, especially if you have employees or have relied on and paid contractors or freelancers for work throughout 2018.
You’ll want to make sure you have abided by the appropriate healthcare obligations and understand that you may be penalized if you weren’t enrolled in some type of healthcare program. Read the Individual Shared Responsibility Provision website page published by the IRS for more details.
You’ll also want to make sure you send out 1099-MISC Forms to contract workers and others to whom you have paid $600 or more for services rendered for a variety of different reasons. And if you have been paid $600 or more by a company or entity for your services, make sure you receive a 1099-MISC form from them. Read About Form 1099-MISC, Miscellaneous Income for more information and to download the form. And consult the IRS Small Business and Self-Employed Tax Center for further details about your tax-related responsibilities as an entrepreneur.
Also, as a small business owner, don’t forget about payroll and tax-related obligations for full-time and salaried employees.
Get Organized and Be Prepared
The most cumbersome and time-consuming part of filing taxes for anyone and everyone involves gathering and organizing the appropriate documents and records needed for claiming accurate figures and expenditures. As soon as these documents are available, collect and organize:
- Bank statements and all receipts and invoices
- Mileage logs
- Expense-related documents and records
- Tax returns and filings from the previous tax year
- 1099-MISC forms and other documents that record income earned – including those both sent and received
- Business balance sheets and ledgers
- Accounts of assets and equity; both personal and business-related
- Records related to business structure and formation – especially for newly-formed businesses or businesses that have recently changed their structures (i.e., LLC becomes a Corporation)
Find and Fill Out the Right Forms
You will need to fill out and/or acquire different forms when filing your taxes, depending on your business or operating structure. As you get prepared to file your taxes, you should always consult a licensed and reputable tax professional when acquiring and filling out forms. However, here is a comprehensive list of tax forms published by Entrepreneur that might apply to you. And you’ll want to read Forms, Instructions & Publications, shared by the IRS, as you prepare your taxes.
Know What You Can Deduct
Knowing what you can deduct or “claim” is perhaps the only fun part to filing taxes each year. As an entrepreneur or small business owner, you won’t want to miss out on important deductions and exemptions that could save you a lot of money.
The most common deductions or exemptions include:
- Home office expenses
- Utilities and mortgage or rent expenses for offices
- Business-related meals
- Travel and car mileage for business
- Professional development and education
- Medical expenses and childcare
- Charitable donations or contributions
- Retirement-related contributions or expenses
- Interest and fees paid for business-related expenses or payments
- Moving expenses
- Legal and professional fees
Consult a licensed professional for more assistance and read the IRS’s Deducting Business Expenses for clarification on qualifying and reporting deductions.
Be Aware of What Usually Triggers Audits by the IRS
Filing your taxes appropriately is important if you want to avoid fines and being audited by the IRS. Here are some red flags that can trigger an audit.
- Having an income between $200,000 and $1 million.
- Not submitting the right forms with your tax return on time.
- Failing to follow the IRS’s rules for claiming business loan interest payments.
- C-corporations with total assets of less than $10 million and multi-member LLCs usually face a considerably lower audit risk overall.
- Failing to comply with the appropriate way to categorize your workers according to the IRS.
- If the IRS is concerned that you are under-reporting or improperly reporting your cash business, you could be at risk for an audit.
Whenever you’re in doubt about how to report something in your tax filings, always consult a certified and reputable tax professional, as they will help you understand exactly what you need to do to avoid being audited by the IRS.
Always Consult Tax Professionals When in Doubt
It cannot be said enough—whenever in doubt when filing your taxes, or just to cover your bases, you should always consult a certified and credentialed tax professional. Especially as an entrepreneur or small business owner. You can even deduct what you pay him or her for services rendered on your tax return, so it will be worth it. You can avoid fees, fines, missed deductions, and so much more if you rely on experts when filing your taxes.
General Best Practices to Follow
- Keep your accounting, expenses, payroll, and other tax-related records up-to-date and well-organized throughout the year so you don’t have to waste hours, or even days, collecting or organizing documents during tax season. You can and should use a free or low-cost software like Wave or FreshBooks.
- If you’re unsure of whether you can deduct an expense, keep your receipts and documents related to the expense anyway. It’s easier to exclude them later when filing your taxes than it is to try and dig up old receipts or records, or not have them available at all.
- While the IRS is the entity with whom you file your official tax return, don’t forget about your other tax-related responsibilities, such as employee payroll and documents, local and property taxes, excise taxes, etc.
- Know when and how to separate your business expenses and records from your personal expenses and records. For example, it’s typically a good idea to open a credit card for business-related expenses, even if you are a sole proprietor, and this can help you keep financial records better organized.
Keep this checklist nearby as you prepare to file your taxes for 2018 to make the process as painless as possible. Also, remember to consult a licensed professional.
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