Small Businesses: Remain Tax-Aware During Pandemic

Don't scramble to get all your finances together a few days before the deadline. If you do, you're setting yourself up for disaster. This has never been more true than this year.

What will you need to gather?

• Last year's business tax return.
• Payroll documents.
• Bank and credit card statements.
• Accounting documents.
• Partnership agreements.
• Depreciation schedules.
• Any paperwork relating to pandemic-related loans.

You want to make a thorough accounting of all income and expenses associated with your small business, so save these documents too:

• Gross receipts.
• Checking and savings account interest.
• Returns and allowances.
• Sales records.
• Unclassified income.
• Employee wages.
• Insurance premiums.
• Professional fees.
• Contractor payments.
• Office rent or the portion of the rent or mortgage paid on your home.
• Transportation and travel expenses.
• Advertising costs.
• Office supplies and equipment.
• Phones and other communication devices.

If you have easy access to these receipts and documents, you'll be more accurate when it comes time to file your small-business tax returns. Plus, you can deduct your small-business expenses to save money on your taxes. You're allowed to deduct "ordinary and necessary" expenses your business incurs, which lowers the amount you owe in taxes. Take advantage of these tips to keep from overpaying your taxes each year:

• Vehicle expenses. If you can prove that you use the vehicle for business purposes, you may be able to deduct the cost of operating the vehicle. You can use the standard mileage rate or actual car expenses like oil, gas, repairs and auto insurance.
• Business insurance. You may be able to deduct the premiums on your business owner's policy, health insurance and malpractice insurance. The IRS provides guidance on deducting small-business insurance expenses.
• Rent. If you rent the space you do business in, you can deduct your rent payments on your small-business taxes, as well as on the equipment and machinery you use. If you're using your home, you can deduct the rent you pay for that portion of your house. (This provision can get complicated quickly, so don't make any immediate assumptions.)

As a small-business owner, you'll have to meet multiple deadlines. Not all deadlines apply to every kind of business, but there's a lot to go through. A look at Publication 509, Tax Calendars will give you an idea of how complicated this can get.

The quarterly estimated small-business taxes can be calculated by estimating your expected adjusted gross income, taxable income, deductions and tax credits for the year. The best gauge is to use last year's taxes as a guide. The IRS's Estimated Tax Worksheet can help you calculate how much you'll owe in estimated quarterly small-business taxes.
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Finally, keep in mind that this is just an introductory guide to what can be complicated laws and regulations, with lots of exceptions and subtleties. Not all deductions noted here are available in all situations. Be sure to consult a tax professional to make sure you are properly taking the right deductions for your business.