For most small businesses, tax season can be a stressful time of document-hunting and form-filling, but it doesn’t have to be that way for your business. To ensure a smooth tax filing season, follow this guide to find out what you will need to make tax season a breeze.
Get your bookkeeping in order
In order to file your taxes, you will need the most up-to-date bookkeeping for the year. Work with your Bench bookkeeper to ensure that all business transactions are properly categorized, books are balanced and bank accounts are reconciled.
Easily stay up-to-date on your bookkeeping by checking your centralized notifications in the Bench app. You’ll be guided to the correct areas where your input is needed in order to complete your books.
We will provide you with a year-end financial package (YEF) which is a comprehensive package with an array of reports such as Income Statement, Balance Sheet, General Ledger, and Trial Balance. You or your CPA can easily use this to file your business income tax return.
Download your year-end financial package when it is ready by going to ‘Documents’ from the ‘My Books’ menu item.
And then ‘Tax’ in the ‘Processed Documents’ section
Pro Tip: Your Bench bookkeeping team will help you every step of the way by reaching out any time there’s inputs needed from you. Make sure you log into Bench regularly to provide the required inputs on time to ensure your books stay on track.
Organize all your receipts and records
The next step is to collect all your receipts, which you will need in case the IRS requests proof of a deduction. Remember that the IRS requires you to keep all business records for three years. To avoid misplacing the receipts and for easier organization, you might want to consider digitizing your records. Here are some tools that can help:
- Secure cloud storage services like Dropbox, Evernote, or Google Drive. Any of these websites will support scanning and storing.
- A dedicated business document scanner, like Fujitsu’s ScanSnap and the Kodak Alaris.
- A dedicated receipt app such as Receipt Bank or Shoeboxed.
Determine all your tax obligations
The next step is to determine your business’ tax obligations. There are a few different types of taxes that your businesses might owe.
The main income taxes you will pay will be federal taxes and state taxes. But you may have other obligations such as franchise taxes and annual report/annual fees depending on your business structure and state. If you have employees, then you will also have to withhold and remit any taxes collected from your employee’s paychecks to the IRS and state authorities.
A few other taxes that states may levy are sales and excise taxes. Make sure to read up on your state’s tax laws to ensure that you are compliant.
Determine whether you need to file an extension of time to file your taxes
Once you know all your due dates, if you think that you cannot file a return in time - you might want to consider filing a tax extension. A tax extension will extend your deadline by 6 months and protect you from tax filing penalties. Note that filing for an extension extends the deadline for filing, but not for paying taxes.
Many business owners are hesitant to file a tax extension, but this is actually a very commonly used tool. In 2022, the IRS received around 19 million requests for extensions. The IRS ultimately wants taxpayers to report accurate information. Tax extensions give businesses and individuals the necessary time to get everything in order and file correctly.
In some cases, business owners don’t get the required forms in time to complete their personal tax returns correctly. For example, S corporation members receive their Schedule K-1 forms after the business has filed their Form 1120S tax return.
There is also a common misconception that an extension increases your chance of getting audited. This isn’t true. An extension doesn’t affect the likelihood of getting audited and the extra time spent ensuring your information is correct decreases the chance of an IRS audit.
Rushing through an extension and making a mistake is much more likely to trigger an audit. Giving yourself the extra six months does more to protect you than put you at risk.