Guidance For Filing Your First Business Tax Return

November 6, 2018

Tax filing time can be nerve wracking, whether it’s your first time or your twentieth, but with this simple guidance, filing for the first time should be made a little easier:

Be sure to fully review the form:

Take a good look at the business tax return you’ll be needing to file, and check to see which areas you’ll need to fill in with amounts and be certain that you can answer every question that it asks of you. They might be as simple as ‘what is the nature of your business’, or ‘is it your first year in business’, but no matter what they ask, you must fill in the answers. Anything omitted from your return could result in a delay.

Preparing a return on a cash or accrual basis:

When filing under the cash basis, your businesses income will be acknowledged when it has been collected, and expenses are recognised when they have been paid. If using the accrual method, income is recognised when it is earned, and expenses are recognized when they have been incurred. It is widely accepted that lenders prefer to see financial statements based upon the accrual method, but tax returns can still be prepared using the cash method, while the financial statements may use the accrual method.

While changes to your methods are permitted, once you have chosen whether to use cash or accrual, that must be your method throughout the existence of your business.

Which depreciation method should you use?

Permitted by the IRS is a first-year deduction of up to $100,000 for most furniture and equipment, rather than the cost being written off over five or seven years. This usually means that most business owners would choose to take the first year write off, however, a business that has not made a profit are not permitted to deduct the first-year depreciation, whilst they may carry it forward to years that may prove profitable.

Don’t forget about the ‘home office’ deduction:

If you are the sole proprietor of a business and you run it from home, then you should look in to whether you can deduct a portion of your residence as a business deduction. This area of tax law is widely contested though, and you’ll have to prove that the area used in your home for running your business is exclusively used for that purpose.

Non-employee compensation:

Independent contractors that were paid will be reviewed to see if the government need to be informed of their non-employee compensation. Employees receive a W-2 form that identifies their income and withholding tax, and contractors would receive form 1099-MISC; a copy of which the federal and state governments would also receive.

To get the desired information, ensure that all contractors complete a W-9 form.

Expenses for your vehicle:

Maintaining an auto log is always a good idea and will help when filing for expenses incurred while using the vehicle for business related purposes.

Self-employment tax:

Self-employment taxes such as social security and healthcare that may make up a significant part of a profitable sole proprietor’s total tax bill, are often overlooked, so ensure that these are calculated as part of a total estimate of taxes when paying quarterly estimates.

This list of guidance is of course not exhaustive, and for more detailed advice when preparing to file your first tax return, be sure to seek advice from a qualified and experienced tax professional.

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