Due to COVID-19, the IRS has moved the federal tax deadline from April 15 to July 15, 2020, which is just around the corner.
By now, many people know that the United States Internal Revenue Service has provided an extension of the traditional tax filing deadline from April 15, 2020, to July 15, 2020, for most entities. The postponements are automatic and apply to all taxpayers. With the new tax filing deadline looming just a couple of weeks away, it’s time to get your books in order if you haven’t already done so. This is true for both individuals and businesses alike.
While mired in the frenzy of making sure their firms are competitive in 2020, small business owners must also look back on 2019 to make sense of every dollar earned and spent to ensure it all fits neatly into those little boxes on the feds’ form 1065, the 1120S or whatever else the IRS is throwing at you. But there are many ways business owners can reduce the stress that accompanies tax preparation and filing. See below for some tips for preparing your business for the new 2020 tax deadline.
Find the right accountant: When many businesses are just starting out, many proprietors don’t think they have the funds to hire a bookkeeper or certified public accountant (CPA). Call around and see if you can find a local CPA that can assist you at a reasonable cost as they are often more affordable than business owners think.
A bookkeeper or noncertified accountant can generate invaluable monthly reports and other financial statements that make life so much simpler when it’s time to file. A CPA, such as Lora Vega CPA, can file your taxes while also giving valuable advice on purchasing and other decisions that can lower your tax burden.
You can get recommendations from other business owners, preferably in the same industry, turn to online search engines, or even look on social media. Interview at least three individuals or firms before making a choice, comparing closely the fees they charge, the software they use, and the transparency they promise their clients.
Get documentation in order: While hiring a bookkeeper or CPA should make this step much easier, it won’t eliminate the need to track the financial life of your business. You’ll still need to gather your monthly documentation of income and expenses either for yourself as you prepare your taxes or for your tax professional.
The IRS recommends businesses retain documents to back up various aspects of their tax returns for “as long as needed to prove the income or deductions on a tax return,” but this generally means keeping records for at least three years from the date the return was filed or from the due date of the tax return (whichever comes later). Technology has obviously made it easier and less space-consuming to preserve such records. You’re likely already recording your day-to-day transactions electronically and there are phone apps dedicated to scanning receipts so your expenses can be readily tracked and justified.
One good thing to do before diving into your tax return is to make sure information is up to date for all employees, contractors, and financial accounts. Tying up any loose ends with inactive accounts or departed workers and partnerships will also make tax season simpler.
Make estimated payments: The federal government requires businesses and contractors that earn more than $1,000, so virtually everyone, to make quarterly estimated income tax payments over the course of the year. This can seem burdensome and can be a hit on your cash flow, but the higher the income, the more likely you’re going to face penalties when you do file your taxes every spring.
If you haven’t been making your quarterly payments up to this point, it’s not too late to start now. The IRS has tax calendars with deadlines posted on their website and recommends taxpayers use the Electronic Federal Tax Payment System to send these payments (corporations are required to do so).
Know all the implications of recent tax reforms: This is the second tax season post-passage of the Tax Cuts and Jobs Act, but don’t assume if you got through unscathed last year that you know everything you should about how it affects your business. Many expense deductions aren’t what they used to be, even though tax brackets may be much more favorable now. Some of the new tax breaks are geared toward larger entities and may not make much sense for a small business to pursue, especially given the time and money that must be invested versus the actual savings.
Changes in deadlines and forms can come every year regardless of how long it’s been since there’s been a major overhaul of tax policy. For 2020, for instance, the deadline for filing Form 1099 for non-employee compensation was moved up to Jan. 31, with no automatic monthlong extensions. A new form for this type of compensation, Form 1099-NEC, is being created, and form 1099-MISC will be redesigned as a result.
We also saw the automatic move of tax deadlines for the federal government from April 15, 2020, to July 15, 2020, due to the COVID-19 pandemic. That means you won’t pay a penalty for filing after April 15 as long as you file by July 15, 2020. If you’re struggling to get everything together in time, you can file for an extension through the IRS. Of course, if you have hired a CPA, they can do this for you.
Know Your Tax Preparation Software: If you elect to handle your taxes on your own, you will want to be familiar with the tax preparation software you’ll be using. While there are a plentitude to choose from some popular tax preparation software products recommended by business.org include Intuit TurboTax, FreeTaxUSA, eFile, and Liberty Tax.
Use available resources: The IRS has a resource page, online tools, and workshops and webinars for small business owners looking for support as they wade into the world of business taxes. Most of the online resources are free, but some may include a fee that’s paid to the sponsoring organization. Many of the large tax software companies offer free content that can be useful, and business groups and agencies such as SCORE, the Small Business Administration, and many local chambers of commerce are also terrific resources for business owners.
If you’d like more information about preparing taxes for your business or recommendations for tax preparation software, call Lora Vega CPA today at (520) 271-3230.