Business tax prep can seem daunting, especially for small business owners filing for the first time. Use this checklist to ensure that you’re ready to file your federal tax return and know how to maximize your business tax deductions.
If you need more guidance on small business tax preparation, consult with your accountant or tax preparer, or check out the Oregon Small Business Development Center’s resources at the end of this guide.
Oregon small business owners are required to pay various types of taxes to the IRS and state authorities. Here are the six main types of taxes.
These are taxes paid on the profits of the business. The Corporate Activity Tax applies to businesses that earn $750,000 or more in annual gross income.
These are quarterly tax payments that apply to many types of small businesses. If you don’t make estimated tax payments as required, you may be subject to interest on underpayment of estimated tax (UND). For detailed information about paying estimated taxes, see the IRS’s guide here.
This is Social Security and Medicare on self-employed earnings.
This is Social Security, Medicare, federal and state unemployment taxes, and Workers’ Benefit Fund (Forms 941, 940/ Form OQ, Oregon Schedule B, Form 132, Form QA) for any employees of the business.
Filed by each individual, partnership, firm, or corporation, this tax varies by locality. Taxable property includes items such as machinery, equipment, and furniture used in a business.
Corporate excise taxes are typically imposed only on a small business set up as a C corporation or an entity that elects to be treated as an S corporation. This is an additional tax charged on goods and services. For entities electing to be taxed as S corporations, a minimum excise tax is typically assessed, and the business owner pays personal income tax on the income that passes through from the business.
The most common federal tax forms for small businesses:
Among the most important steps of small business tax prep is collecting pertinent financial information. Having the following documents available (as applicable) will help to make filing your taxes less time-consuming.
For business owners who use part of their home for business purposes, you may be able to deduct expenses for the business use of your home.
Document the square footage of your home office and the total square footage of your home, as well as how much you paid for mortgage interest or rent, utilities, homeowners or renters insurance, property taxes, repairs, and any separate phone line you maintain. Also, if you use the internet and/or cable, include this with your home office documentation.
As a small business owner, you have access to tax deductions and tax credits to reduce how much you owe, but you will need to prove that you qualify for them. Here are some of the deductions that small business owners may qualify for:
The IRS awards tax credits to businesses that engage in a particular type of business action that benefits the economy or society. Some common small business tax credits:
You may have incoming or outgoing 1099 forms for your business, and it’s a good idea to get these in order in advance.
If your small business works with independent contractors, you must file Form 1099-NEC for each non-employee whom you have paid at least $600 for services performed. If the independent contractor also provided supplies/materials/goods to your business, include those on the 1099-NEC. Be sure to collect a new W-9 from each independent contractor annually, as their business information may have changed.
A service-based small business that has received payments will have incoming 1099s. If you are expecting a Form 1099 and have not received one, be sure to include this in the gross income of your tax return.
If the information on Form 1099 is incorrect, be sure to contact the payer to correct it. If you are unable to do so, attach an explanation to your tax return.
Form I-9 verifies the identity and employment authorization for new employees who have been hired to work in the United States (citizens and non-citizens). Employers are expected to re-verify should an employee’s employment authorization documentation expire.
Use Form W-4 to withhold income tax from employees’ pay. Employers should ensure that they have new W-4s for:
Employers should remind employees to submit a new W-4 form if their withholding allowances have changed or will change next year.
When recording loan balances, small business owners should record payments to their loan principal and interest separately. This is because only payments on the loan interest are tax-deductible. Verify that credit card purchases have been entered, and reconcile the credit card at year-end.
Accounts and trade payables need to be verified to ensure that balances that show due for unpaid taxes, vendor invoices, and trade invoices match the details in the accounts payable.
As part of your small business tax preparation, it’s important to review your loan, credit card, and vendor statements with your bookkeeper at the end of the year to ensure that the loan balances on your balance sheet are accurate and match the balances on your statements.
Plan to take this as part of your paperwork for your tax preparer.
Your profit and loss (P&L) statement, also called the income statement, summarizes your revenue and business expenses throughout the tax year. Your P&L will include much of the information you’ll need during your business tax prep.
You may be able to lower your total taxes by considering:
Be sure to run both the balance sheet and P&L, or income statement as it is known on most software packages, using the same method—cash or accrual.
A professional can ease the pain of tax season. A tax professional will help ensure that you file your return correctly and that you maximize any deductions or credits available. In many cases, the deductions and recommendations they make can save their fee and more!
If you haven’t yet hired a tax professional, here are some tips to help you find the right one:
If you don’t think you’ll be able to file your taxes by the deadline, you can request an extension, which will give you until the given deadline to file your return.
Even if you receive an extension, you must pay your taxes by the original deadline to ensure that you don’t incur penalties.
The PCC Small Business Development Center is committed to building Oregon’s best businesses by assisting small businesses with advising, training, and access to the resources they need to be successful. Learn more about how the PCC SBDC can support your business here!