Business Taxes: Ideas for Last-Minute Filers
For most of the year, focusing on running your business can take priority over focusing on your taxes. As a result, it can be easy to put off filing your taxes, especially this year, given the many new challenges that business owners are facing.
With Tax Day looming, if you haven’t done your business taxes, the last-minute scramble to track down paperwork and crunch numbers can feel overwhelming. Especially if you’re new to running a business.
If you’re one of the many last-minute tax filers out there, we want to help by sharing a few tax planning strategies to help you save time, reduce the stress of filing, avoid costly mistakes, and make the process easier next time around.
A large tax bill can lead to cash flow issues, so don’t let your sense of urgency stop you from taking advantage of tax strategies that could lower your taxable income.
If you itemize deductions, identifying the right deductions could make a big difference. We recommend that you avoid estimating your business expenses. Make sure that each reported expense is accurate to avoid potential penalties if you’re audited.
Business tax deductions may include:
- Rent for your business or the costs directly associated with a home office (however, this deduction isn’t available for employees who started working from home due to the pandemic)
- Business expenses related to your phone/internet service and supplies
- Costs and depreciation related to equipment or vehicles
- Qualified business travel expenses
- Employees’ salaries and benefits
One of your best tax moves could be to make last-minute retirement plan contributions, such as to an IRA or Simplified Employee Pension Plan (SEP IRA). Along with supporting your retirement savings, contributions may lower your taxable income. You have until your tax filing deadline to make retirement savings contributions that count toward the 2020 tax year.
Returns only need to be postmarked (not received) by April 15 (or your applicable tax deadline), but filing online has other benefits in addition to expediency. Digital tax returns tend to have fewer errors than paper returns, which helps reduce processing delays. Filing online also keeps your sensitive financial information out of the mail stream.
Safeguard Your Data
Theft and fraud are year-round risks, but they can be especially rampant around tax time. Criminals work to obtain and use sensitive financial information like your Social Security or business tax ID number to commit identity theft, such as by filing fraudulent tax returns in your name.
Here are some recommendations:
- When storing or sending financial documents digitally, make sure your computer’s operating system is up to date and that you’ve installed the latest antimalware and firewall protection.
- Back up documents on an external hard drive or in the cloud so you don’t lose them in the event of a ransomware attack.
- Keep hard copies of financial documents secured in a locked cabinet, and shred documents that you don’t need anymore.
- Don’t send sensitive information over public Wi-Fi.
- Never respond to surprise phone calls or emails from “the IRS” – it’s a scam.
Know How PPP Money Fits Into Your Taxes
If you received economic relief through the Paycheck Protection Program (PPP), we’ve got great news: You may claim a tax deduction on qualified business expenses you paid with PPP funds that are or will be forgiven. Also, forgiven loans are not taxable income at the federal level or here in Pennsylvania.
If you have specific tax questions related to your PPP loan, we recommend speaking with a tax advisor.
File an Extension If Necessary
If for one reason or another, you won’t be able to file your return on time, you can get an automatic extension of six months. This can give you some breathing room and help you avoid a potentially steep penalty for filing late. If you’re a sole proprietor, you’ll need to submit Form 4868.
Stay Organized Year-Round
Improved bookkeeping may not create new tax savings now, but it could help your tax planning down the road. Consider setting up more robust bookkeeping policies or investing in new accounting software. Also, be vigilant about keeping and organizing records of business expenses, which can help you maximize tax savings next year.
Stay on Top of Your Quarterly Taxes
Since small businesses don’t pay income tax year-round like workers do, they need to pay estimated taxes quarterly. If you underpay during the current year, you could wind up with a big tax bill next tax season, along with a penalty from the IRS. Your small-business accounting software should be able to help you calculate quarterly tax payments.
Work With a Professional
Is the hassle and complexity of doing taxes distracting you from your day-to-day business? It may be time to hire a professional to help. When you consider the benefits of relying on an outside bookkeeper or CPA – especially having the expertise that helps you avoid costly tax mistakes – it’s probably worth your money.
Be Smart About Business Expenses
Although it’s not uncommon for business and personal finances to be intertwined, keeping them separated is considered a best practice. Making sure your business and personal expenses are clearly separated gives you a better picture of your business’s financial health and avoids confusion and extra work at tax time. Having separate bank accounts and credit cards for personal and business use is key.
At Ephrata National Bank, you’ll find many resources to manage your business banking simply and effectively, from convenient checking accounts to business credit cards that make it easy to manage and track expenses. So partner with a team that’s focused on local businesses – during tax season and throughout the year.
The information in this article is for general information purposes only. For tax information and guidance relative to your specific situation, please consult your tax advisor.