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What Tax Form is Right for your Business? – Avoid these 4 common tax blunders

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When it comes to filing a federal income tax return for your small business, you have several options depending on whether you operate your small business as a sole proprietorship or through a legal entity such as an LLC or corporation.

Each type of business entity has a different tax form for reporting its business income and expenses. Regardless of the form you use, you generally calculate your taxable business income in similar ways. 

Bookkeeping assists you in budgeting for your business, preparing tax returns, organizing your business, and much more. It is something you should not avoid if you want to keep your finances in order and avoid problems with the IRS. According to the US Small Business Administration, the first step in bookkeeping is to obtain business accounting software. Keeping track of your finances over time will usually make tax season much easier. A thorough record of your company’s finances allows you to stay on top of your tax obligations.

First things first, take a step at a time to ensure that you’re on the right track.

The first step is, Collect all business records

You should have all of your business earnings and expenses records in front of you before filling out any tax form.

 Secondly, choose the right tax form

You must always report your business earnings to the IRS and pay taxes on them, but choosing the right tax form to report earnings on depends on how you operate your business.

Once you have gathered your business information and the appropriate tax form, you will fill it out while keeping deadlines in mind. To avoid fines and penalties for late payments, make sure you file everything on time.

The right tax form for your Business Type - Avoid 4 common tax blunders

According to the US Small Business Administration, the first step in bookkeeping is to obtain business accounting software.

Common tax blunders in small businesses that can be avoided

Avoid underpaying taxes

It is preferable to overpay and have the IRS issue you a tax refund than to request more money. When you are asked to pay estimated quarterly taxes as a small business owner. You must estimate your state and federal income tax payments each quarter and submit them to the IRS and state treasury. Not to mention any additional taxes, such as sales tax, even if you pass them on to your customers. To avoid underpayment, always try to pay more.

Never forget about deductions  

Many small business owners overlook deductions, not knowing that deductions may help reduce their tax burden. The IRS is generally strict about distinguishing between what is professional and what is personal. Always keep track of what you spend at the moment so you don’t forget it later. This allows your tax professional to easily determine what is and is not deductible.

Avoid keeping together personal and business expenses

Make your life easier and less complicated by separating your personal and business expenses. Ascertain that your business has its own bank account and credit card.

It may necessitate a few extra steps, but it will usually make auditing easier and your company appear more professional.

Avoid Under-reporting your revenue

As a business owner, you must report all income earned during the fiscal year. The IRS will match it up with their own records, so don’t expect to pull a fast one on them. This could be considered tax evasion, and it could land you in trouble.

To avoid common tax blunders, always take paperwork seriously, be thorough and timely, and even if it means hiring a helper, hire an accountant or bookkeeper who will manage and understand your financial obligations.

Are SBA Loans Taxable Income for Your Business?

This is a common question among small business owners interested in SBA Loans for financial assistance.

Small-business loans are not taxable income for your business. Simply put, if your taxable income does not rise, neither will your tax liability.

In fact, in some cases, you may be able to deduct a portion of the interest paid on that loan, allowing you to deduct more from your income and save money on your taxes.

When combined with write-offs for business-related purchases, you may be able to reduce your annual taxable income significantly, saving your business money despite having extra capital on hand.

The IRS does not consider loan proceeds to be revenue. The loan proceeds have no effect on the borrower’s tax return because SBA 7(a) loans must be repaid within a certain time frame.

Also, If you’re looking for an SBA Loan, SmartBiz has made SBA Loan processing shorten. Click here and get started.

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Disclaimer: This article is for information purposes only hence not directly related to Addy and Mark in any way. Always check the official website for updated information.

Last Update: September 9th, 2023

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