Many people find doing their own personal taxes very difficult, but with the various software products out there it is quite easy. Most of the questions on the forms are clear and easy to understand with automatic calculators keeping up with everything along the way you are finished in no time. Thinking that since there are software products for business taxes as well, the process should be the same…simple and quick. Even though this was our first year to file taxes we decided since the business made little income, we incorporated late into last year, there would not be much work to do.
First of all, make sure of the rules governing taxes within your state, such as do you need to file quarterly. You want to make sure you are doing what the state requires as well as the federal. Also, there are numerous free publications you should review outlining what you need to keep up with, such as start up expenses, and the various deductions you are allowed. You need to make sure you have set aside funds, regularly, to cover paying any taxes and do not wait until tax time to scramble for these funds. If you set aside more than what you need, well, you’ve earned a bonus or you may consider this fund to be, also, the fund to cover the recurring costs of doing business, such as yearly expenses for licenses and insurance. Consider setting aside these funds in a savings account for the company. This will help build your credit and with most banking institutions you can tie this savings account to your checking account for overage protection. Backing up your checking account is typically done with a credit card, but your business may not qualify for one for at least six months. Again, we are a very small business, just being my wife and me, so for small businesses with much more income and employees these ideas and ways of doing things may not apply or be on a scale to suit your needs. To better understand what all you will need, deductions and filling out tax forms I suggest reviewing an article found at this link http://www.brighthub.com/office/home/articles/12579.aspx which provides a good deal of basic information.
Even using small business tax software we did not find it easy to fill out the forms correctly and in some cases we had to guess. There is terminology used which is not defined, but I am sure is familiar to someone with an accounting back ground or education. Some of this terminology we could not find a clear definition of from on line sources as none of the definitions were applied directly to the use when doing your taxes. With that being said, I would suggest for your first year filing you use a tax service so you may sit down with them and have these various definitions provided and some guidance as to how they affect or apply to your specific type of business. It took the better part of a day for us to go through and fill out the forms which included a lot of head scratching, somewhat educated guessing and finger crossing.
All appeared to be good with what we submitted for federal and state taxes as no issues came back. I am not at all sure, in some cases, we did assign amounts to the correct areas (you can actually put amounts in different areas and still produce an “acceptable” filing) and that this will not come back to haunt us when we file again. I have every intention of using a service the next time so I may be better informed about the decisions we made this time and the potential repercussions if some of them were wrong. I do believe, though, once you understand all of the definitions you can do your own small business taxes about as easily as doing your personal taxes.
Next time: “Your Business Plan is your friend!”