Tips in Tax season for Small business owners

1. Share tips for filing taxes

• Know your tax obligations. Depending on your business structure, location, and activities, you may need to pay different types of taxes, such as income tax, corporation tax, value-added tax (VAT), payroll tax, property tax, etc. You should also be aware of the tax rates, deadlines, and exemptions that apply to your business.
• Separating your personal and business expenses: Providing proof of your business expenses can be messy and time-consuming if you use your personal bank accounts to fund your business. Even if you use personal funds to keep your business afloat, you should still use separate accounts for personal and business expenses. Not only can this help you track expenses more accurately, but it can also save you time when filing your taxes. 
• Use accounting software or apps. You can use accounting software or apps to help you manage your finances, record your transactions, generate reports, and file your tax returns.
• Understanding deductions: On your personal income tax returns, you can take tax deductions for things like child care, medical expenses or mortgage interest. As a business owner, you can access small business tax deductions that help offset some of the taxes you owe, minimizing out-of-pocket tax payments.
• Don’t let the filing deadline sneak up on you: Missing IRS deadlines can result in costly fees and interest charges on your tax bill.

2. Offer advice for maximizing deductions

• Claim all your business expenses. You can deduct any ordinary and necessary expenses that you incur to run your business, such as rent, utilities, supplies, equipment, advertising, travel, meals, etc. You should keep receipts and records of all your business expenses and categorize them properly. You should also be aware of the limitations and exceptions for some expenses, such as entertainment, gifts, or personal use of vehicles.
• Use the simplified methods for some deductions. You can use the simplified methods for some deductions to save time and hassle. For example, you can use the standard mileage rate instead of tracking your actual vehicle expenses; You can use the simplified home office deduction instead of calculating your actual home office expenses; or you can use the flat rate scheme for VAT instead of accounting for each input and output tax.
• Claim the qualified business income deduction. If you are a sole proprietor, a partner, an S corporation shareholder, or a single-member LLC owner, you may be eligible for the qualified business income (QBI) deduction. This deduction allows you to deduct up to 20% of your net business income from your taxable income, subject to some limitations and phaseouts based on your income level, type of business, and amount of wages and assets.
• Deduct your start-up and organizational costs. If you started a new business in 2021, you may be able to deduct some of your start-up and organizational costs. Start-up costs are expenses that you incur before your business begins operations, such as market research, advertising, training, etc. Organizational costs are expenses that you incur to create a legal entity for your business, such as legal fees, filing fees, etc. You can deduct up to $5,000 of each type of cost in the first year of your business, and amortize the rest over 15 years.
• Deduct your retirement plan contributions. If you have a retirement plan for yourself or your employees, such as a SEP IRA, a SIMPLE IRA, a solo 401(k), or a defined benefit plan, you can deduct your contributions to the plan as a business expense. This can lower your taxable income and help you save for retirement at the same time. You should check the contribution limits and deadlines for each type of plan before making your contributions.

3. Provide an overview of the different types of tax forms

The different types of tax forms for SME depend on the business structure, location, and activities of the business. Some of the common tax forms for SME are:

• Form 1040: This is the individual income tax return form that is used by sole proprietors, partners, and single-member LLC owners to report their income and deductions.
• Form 1120: This is the corporate income tax return form that is used by C corporations to report their income, deductions, credits, and taxes. They may also need to attach other forms and schedules depending on their specific situation.
• Form 1120S: This is the income tax return form for S corporations that is used to report their income, deductions, credits, and taxes. They also need to attach Schedule K-1 for each shareholder to report their share of the S corporation’s income, deductions, credits, and taxes2.
• Form 1065: This is the partnership income tax return form that is used by partnerships and multi-member LLCs to report their income, deductions, credits, and taxes. They also need to attach Schedule K-1 for each partner to report their share of the partnership’s income, deductions, credits, and taxes2.
• Form 941: This is the quarterly federal tax return form that is used by employers to report their wages, tips, and other compensation paid to employees, as well as their federal income tax withholding, social security tax, and Medicare tax. They also need to deposit these taxes according to a schedule determined by the IRS3.
• Form 940: This is the annual federal unemployment tax return form that is used by employers to report their federal unemployment tax (FUTA) liability and payments. They also need to deposit this tax according to a schedule determined by the IRS3.
• Form W-2: This is the wage and tax statement form that is used by employers to report the wages, tips, and other compensation paid to employees, as well as their federal income tax withholding, social security tax, Medicare tax, and other taxes. They also need to send a copy of this form to each employee and to the Social Security Administration.
• Form W-3: This is the transmittal of wage and tax statements form that is used by employers to summarize the information reported on Form W-2 for all employees. They also need to send a copy of this form along with Form W-2 to the Social Security Administration.
• Form 1099: This is a series of forms that are used by payers to report various types of payments made to nonemployees, such as independent contractors, freelancers, vendors, etc. The most common form in this series is Form 1099-NEC (nonemployee compensation), which reports payments of $600 or more made for services performed by nonemployees. Other forms in this series include Form 1099-MISC (miscellaneous income), Form 1099-INT (interest income), Form 1099-DIV (dividends and distributions), etc. The payers also need to send a copy of these forms to each payee and to the IRS.