As a small business owner, your time is valuable. When you add taxes and accounting to your daily task list, it’s easy to feel like you’re being spread too thin. From dealing with ever-changing federal tax codes to wondering what counts as a deduction, accounting has never been more complicated for small businesses, especially as we move into 2023. Incfile can help with a free tax consultation.
What Will Your Tax Consultation Include?
Whether you form a business with Incfile or simply want to talk to an expert, take advantage of our free 30-minute business tax consultation. As part of it, you’ll be able to talk to a business tax expert, ask questions, and get the insight and support you need to make filing and paying your taxes a breeze. Here's what will be covered in your free Q&A session with a tax expert:
- Explanation of relevant taxes and forms specific and relevant to your business
- Overview of business expense categories and what you can deduct
- Breakdown of best practices for business bookkeeping
Explanation of Taxes and Forms
Each business’s structure and operations are different, so taxes aren’t a one-size-fits-all situation. Our experienced accountants and bookkeepers will use their expertise to ensure you’re reporting, filing, and paying the following taxes properly:
- Employer self-employment or payroll tax
- Employee self-employment or payroll tax
- Federal income tax
- State income tax
- Corporation tax
Based on your business entity, you’ll also need to know about the corresponding tax forms:
- 1040 for LLCs: If you’re an LLC and you haven’t chosen to pay taxes as an S Corporation, then you will record, file, and pay taxes on your individual 1040 tax return. Since LLCs are considered “pass-through” entities, your business won’t pay taxes itself, but rather, all taxes will be filed through your personal return. Business earnings are typically shown on “Schedule C” of the individual return. You will also need to report and file Schedule SE for your self-employment tax and possibly other schedules.
- 1065 for LLCs with two or more owners: If your LLC has two or more owners, then it’s likely you will also need to file a 1065 Partnership tax return.
- 1120-S for S Corporations: If you’re an S Corporation or a C Corporation that’s filed a Form 2553 to be treated as an S Corporation for tax purposes, you’ll need to file 1120-S or 1120-A (the short version). Luckily, an S Corporation (similar to an LLC) allows you to avoid the double taxation you’ll be faced with as a C Corporation.
- 1120 for C Corporations: You’ll file Form 1120 and pay corporation tax accordingly as a C Corporation. Then, you’ll report earnings and dividends on your 1040, and you’ll be liable for personal income tax on that amount.
During your consultation, our tax consultants will assess your business’s needs and tell you about the correct forms you’ll need.
Overview of Business Expense Categories
Your expert will give an overview of how the IRS categorizes business expenses and all the different types of deductible business expenses.
Typically, business expenses fall into two broad categories: deductible business costs like the cost of goods sold and costs you can capitalize (capital expenses). The latter includes business startup costs, business assets, and improvements.
Here’s a high-level overview of deductible business expenses. Note that this isn’t a comprehensive list, so if you have questions about whether an expense is deductible, your consultation is a great time to ask an expert.
- Employees’ Pay: If you've registered for an Employer Identification Number (EIN) — which is required if hiring employees — you can deduct employee pay. This is described by the IRS as “wages, salaries, bonuses, commissions, or other noncash compensation such as vacation allowances and fringe benefits.”
- Rent Expense: You can deduct rental expenses directly related to your business as long as you have not and will not receive equity associated with the property.
- Interest: Any interest paid on a loan used strictly for business expenses is treated as a deductible business expense.
- Taxes: You can generally deduct federal, state, local, and foreign taxes in the same year you pay them.
- Insurance: If you get business insurance, the IRS allows for the deduction of the “ordinary and necessary cost of insurance” as a business expense.
- Business Bad Debts: A business bad debt occurs when you cannot collect money owed to you. The debt is considered worthless. You can deduct bad debt on Schedule C of your 1040 or whichever form your business files.
- Other Expenses: You can also deduct miscellaneous costs like meals, travel, charitable contributions, education expenses, lobbying expenses, and penalties and fines.
Breakdown of Best Practices for Business Bookkeeping
Whether you choose to DIY your business bookkeeping or rely on our professional services (more on that below), you’ll want a solid understanding of best practices. Your accounting expert will likely review the following during your consultation, at a minimum:
- Separate business and personal expenses. This is business finance 101. To keep the books clean, you must separate any personal finances from business-related ones. Do this by opening a business bank account and using a separate debit or credit card.
- Keep track of all business income and expenses. For small businesses with less than $5 million in revenue, a simple ledger categorized into income/revenue and expenses will suffice. Using a separate business bank account will make this easier.
- For a DIY approach, choose an accounting software: There are many small business accounting software programs available. The most popular ones include Wave, Quickbooks, Kashoo, FreshBooks, Xoho, Zero, and OneUp.
- Understand your tax obligations. Do you need to file quarterly taxes? Sales taxes? What can you deduct? All of these questions and more are important to understand as you balance the books of your small business.
Q&A Session With an Accounting Expert
We spoke to Jeffery A. Jensen, CPA and director of tax at Mazuma, a licensed accounting firm, to get some expert answers to help you with the upcoming tax season.
What's the most important thing a small business can do to reduce its tax liability?
Overall, the best way to reduce your tax liability is to capture all your deductions, which is why bookkeeping is so important. Bookkeeping will give you better insight into your business finances, keep you organized, and, at the end of the year, maximize your deductions and tax savings.
Other good ways to lower your tax bill include:
1) ensuring your business entity type is the best choice for your business and
2) having a tax planning session with an accountant to strategize.
When it comes to staying compliant, the biggest mistake I see small business owners making is they commingle their personal and business funds. To prevent this, simply set up a separate bank account for your business and ensure all your business expenses or revenue come in and out of that account and all your personal expenses or revenue go into your personal account.
This will also help simplify your bookkeeping and help you more easily identify tax deductions. Another mistake business owners make is forgetting to pay quarterly estimated taxes. If your business does not have payroll, it’s likely you will need to pay quarterly estimated taxes. If not, you could be penalized by the IRS.
What do I need to consider if I hire my children or spouse to help with my family business?
Many business owners employ their children to save on taxes because you can deduct their salaries as a business expense. In addition, if your child is under 18 years old, they will not be required to pay Social Security or Medicare tax on their income.
While this can be a nice perk of owning a business, make sure you stay compliant and follow the IRS guidelines. Make sure that the amount you are paying them is commensurate to the work being performed. This means their paycheck needs to be reasonable, so no paying your son $100,000 per year for cleaning your windows.
Also, make sure the work being performed is appropriate for the ages of the children. If you hire your 11-year-old daughter to be your marketing manager, that might raise a few red flags for the IRS.
And finally, make sure to comply with legal requirements and fill out all the appropriate paperwork. Your children are still considered employees and should be treated as such.
What records should I absolutely maintain as a small business owner?
There are quite a few documents you’ll want to save for your personal records or taxes. The top of the list is going to include statements that you get on a regular basis:
- Bank statements
- Credit card statements
- Mortgage statements
- Investment statements
Next, you’ll want to keep track of how you spent money that could be tax deductible:
- Charitable donations
- IRA contributions
- Health care costs
- Life insurance payments
You should keep receipts or statements regarding these expenses to help your accountant find the most deductions for you.
Finally, you’ll want to hold onto any important documents that show you had a major life event:
- Marriage certificate
- Divorce papers
- Birth certificate for children
- Home purchase documents
(We have created a helpful overview of each of these documents and how long you should keep them on our blog.)
Important Documents for Business Taxes
Business taxes also require documentation for any tax deductions you wish to take. You’ll need to save basic documents, just like you did for your personal taxes.
- Bank statements
- Credit card statements
- Bills
These are all important for your tax returns, so save them in a safe place in your office.
Also, be sure you save receipts for things you plan to take a deduction on:
- Travel expenses
- Business meals
- Gifts
- Giveaway purchases
- Transportation costs
- Petty cash receipts
- Advertising costs
- Office supplies
All of these are tax-deductible, but you need to be able to prove that you used them for business. It’s helpful to make a note of what the receipt was for. For instance, if you took a client out to lunch, then you could make a note of the client’s name and what you discussed. Or, if you traveled to a conference for business, keep brochures, notes, or agendas from the conference.
Finally, you’ll want to keep track of expenses that are specific to businesses:
- Payroll records
- Asset records
- Property costs (rent or mortgage)
These are all very important for business taxes because they can help keep your tax bill lower. The assets can roll over from year to year, so make sure you keep your records up to date.
Keep your important records for a minimum of three years. The IRS requires that you keep records for at least three years after the due date of the tax return or the date you filed the tax return, whichever is later. The period of limitations to file an amendment is three years; however, the IRS can audit you up to six years later.
What, according to you, is a great resource for complicated tax regulations for a small business owner with no background in accounting or finance?
Mazuma! We specialize in helping small business owners maximize their tax deductions and receive expert advice. We also simplify your accounting by taking care of your bookkeeping, taxes, and financial reports. We offer the best services at the best price in the industry. In fact, we often save our clients more on their taxes than our services cost for an entire year.
We provide free resources on our site and frequent webinars to help inform any small business owner.
What's a common mistake you see business owners make regarding their taxes?
- Filing their personal taxes without waiting for their business taxes to be completed. This means their business information will not be accurately represented on their personal taxes and could raise red flags for the IRS. You can always amend a return, but it’s best to do it right the first time.
- Mixing business and personal expenses or income. Again, this can make your bookkeeping and taxes harder than they need to be and create liability issues. That’s why it’s important to have a separate business account.
- Missing deductions or credits. Tax laws and regulations are constantly changing, so it can be easy to miss important deductions or tax credits.
- Failing to consult with an accountant about their entity type or to create a tax strategy.
What are the most missed tax deductions?
The most missed tax deductions involve items that are often used for business and personal use, such as deducting their personal cell phone bill, car mileage, and home office deductions.
In addition, there are other deductions that are not as straightforward as simply deducting business supplies, so business owners can overlook them or fail to use them to their full benefit. These include things like health insurance, taxes, depreciation, retirement contributions, etc.
What's the main tax update for 2023 that small business owners should look out for?
Auto Mileage Rates:
January 1 - June 30 = $0.585 per mile
July 1 - December 31 = $0.62.5 per mile
How to Prepare for Your Free Tax Consultation
You’ll want to take maximum advantage of your free tax consultation. The point of this is to make things easier so you don’t need to spend hours prepping. That said, we do recommend having some basic information ready before you chat with your tax expert.
Gather Your Financial Resume
Your tax consultant will want some basic background info on you and your business to get a comprehensive understanding of your situation and will likely ask for information like:
- Whether this is your first business
- How long has your business been in existence
- The amount you’ve invested into your business
- Any previous experience you have with running a business or paying taxes
- If you’re employed and paid elsewhere, through receiving wages or as an independent contractor
- Whether you’re currently working with an accountant or other tax professional
Reference Some Key Info From Your Business Plan
Remember that business plan you worked so hard on? This is a great time to reference it. You’ll want to note some key information for your consultation, like:
- The types of products and services you sell
- Major expenses or costs
- The ownership structure of your business
- Whether you have any other investors, partners, or owners
Take Tax Prep Further With Our Bookkeeping Service
After talking with your tax expert, you might want a professional to take care of your business tax affairs. We get it — many business owners say that tracking their bookkeeping, gathering information, filing, and paying their taxes is their least favorite responsibility!
If that’s you, we can help. We provide a complete, cost-effective Business Accounting and Bookkeeping service that does all the hard work for you. Unlike a self-service bookkeeping software, our team consists of real humans who are experts — so you don't have to be.
Our monthly subscriptions are just $90 for the starter level and $180 for the pro package. We’ll help you with the following:
- Ensure you’re compliant with all of the IRS and state DOR requirements
- Gather the right information to file your tax forms with the right agencies, in the right ways, at the right times
- Access easy-to-use bookkeeping software so you can understand your revenue, expenses, cash flow, transactions, balances, and profits
- Get monthly financial reports to help manage the financial health of your business
- Enjoy unlimited bookkeeping and accounting support
- Maximize your expenses and write-offs to keep your tax bill down
- Prepare and file a federal tax return and one state tax return
Is a Professional Bookkeeping Service Worth It?
With 82% of businesses citing poor cash flow as their reason for closing, working with professionals at your fingertips is well worth it. With us, you’ll get a dedicated bookkeeper and a small business tax specialist. You can schedule as many tax consultations as you want, direct from your Incfile dashboard.
Take the stress out of your taxes by taking advantage of your free small business tax consultation.
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Karlie Kramer
Karlie Kramer has over 6 years of experience in content marketing, from technical SEO and blog writing to team management and client success. She enjoys pouring over an obscene amount of cookbooks, tending to her veggie garden, and snuggling with her cat, Percy.
