Chapter 5 Business Taxes in 2018: Your Checklist for a Penalty-Free Tax Season [Important Dates Included]
Every business is unique and so is its tax situation.
This not only leaves a lot of room for different tax strategies across all businesses, but it also means most business owners are unsure about where to start.
What is certain is that there are two things every business can do to succeed when it comes to taxes:
- Be on time
- Be organized
Once you’ve embraced these two mentalities, there are actionable steps you can take to avoid penalties and fees, as well as alleviate yourself from spending too much time, money and resources when preparing and filing your taxes each year.
Your Step-By-Step Checklist for Conquering Business Tax Laws
When it comes to taxes, to be perfect is to be punctual.
While it’s tempting to get caught up in the world of lowering your tax liability through deductions and credits, the real reason most small businesses overpay on taxes each year is because they miss their tax deadlines.
Businesses that are behind on taxes face financially crippling penalties, fees and interest.
Follow these steps to build a strategy around your key tax dates and lower your tax liability:
1. Know your due dates.
This is listed first for a reason — you need to know your deadlines to hit them. You can use this infographic to get started building your own basic tax calendar and avoid paying more than you have to.
Add these tax-filing dates to your 2018 calendar:
2018 Business Tax Deadlines for 2017 Tax Filing
- Due March 15, 2018: Original deadline for partnerships (Form 1065) and S Corporations (Form 1120S).
- Due April 17, 2018: Original deadline for C Corporations (Form 1120) and individuals (Form 1040).
- Due May 15, 2018: Original deadline for exempt organizations (Form 990).
- Due Sept. 17, 2018: Final deadline for partnerships and S Corporations (with extension).
- Due Oct. 15, 2018: Final deadline for C Corporations and individuals (with extension).
- Due Aug. 15, 2018: Final deadline for exempt organizations (with extension).
2. Pay your tax liability on time, no matter what.
Even if you file for the extension, that filing extension does not extend your deadline for paying any income tax liability owed.
If you fail to pay your taxes on time, you’ll be on the hook for both the late payment penalty (half of 1% of your unpaid taxes, per month), as well as interest (the federal short-term rate plus 3%), compounding daily.
3. When in doubt (any doubt), file for the deadline extension.
It’s very rare that the IRS gives you the gift of more time.
If for any reason, you’re worried you won’t be able to pull a return together before your initial due date, file for the extension and use that time to get organized (see more below) or give your tax preparer everything they need.
In addition to the penalties and interest you pay on your owed tax liability, there is also a late filing penalty.
This penalty starts accruing the day after your due date and ranges from 5% to 25% of your unpaid income taxes for each month the income tax return is late.
4. Spend money at the right time.
Your tax return and liability are based on the income and expenses your business had over the course of your tax year.
This means if you want to lower your tax liability for a certain year, you’ll want to make tax deductible purchases during that year.
Knowing when your year-end is based on your fiscal year and understanding how/when your business recognizes revenue and expenses based on your accounting method will allow you to plan to spend accordingly.
How to Manage Business Information for Tax Purposes
Fussy, persnickety, particular: these are all words you can use to describe the IRS.
Really, you can never know exactly what nook and cranny they’ll dig into when it comes to inspecting your business’s finances.
There’s no such thing as being too organized when it comes to dealing with tax authorities.
Here are a few ways you can organize your business records in anticipation of the IRS’s questions:
- Solid bookkeeping year-round: This is the key to a stress-free tax season. When you give your accounting proper attention throughout the year, taxes are much more straightforward. Closing your books each month, quarter or year helps you plan ahead for tax filing as you go (in real-time with your business activities) and at the end of your fiscal year just before your file.
- Separate business spending: Using a business account for personal spending (or commingling) is against tax law. The IRS will almost certainly flag any spending that could potentially fall outside of what is ordinary and necessary for your business. Un-commingling these expenses after the fact is even worse, so keeping these transactions as delineated as possible using separate accounts is best for your own sanity.
- Proper documentation for claiming tax credits and deductions: According to the IRS, you should keep records of your gross receipts, proof of purchases, expense documents and documents to verify assets. These will all come in handy when claiming deductions for qualifying business expenses as well as applying for tax credits for your business activities.
- Well-organized essential company information: There’s basic information you’ll need to disclose about your business (incorporation details, legal name, legal address, etc.). Having all of your company’s essential tax information in one place will help you start off on the right foot when inputting your information when you go to file.
- Cognizance of your location: In addition to your tax responsibilities on a federal level, you’ll also need to be aware of the responsibilities based on the states where you have tax nexus and any foreign activities. Online retailers and other ecommerce businesses should keep a special eye on state sales tax requirements based on the states where they sell, ship or house their merchandise.
Check off all the above points and you’ll be in good shape for a stress-free, IRS audit free business tax year.
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