Is this your first year running your own business?
If so, you’re probably feeling quite the sense of accomplishment.
Of course, you still need to finish strong, which means nailing that initial tax filing.
3 Steps for Filing Your Company’s Taxes for the First Time
While it’s definitely an important process, the good news is that filing your company’s taxes for the first time doesn’t have to be such an intimidating prospect. Just follow these three steps.
1. Carefully Review the Form
First, review your business tax return to make sure you know which line items you have to fill out with the relevant amounts.
Do this early as you’ll probably discover that there is at least one question on the form that you’re unsure about.
Confirm that your chart of accounts has the right categories of incomes and expenses for your tax return. While every company needs to practice good bookkeeping, many owners find out during tax time that they need to adjust their reports to be within compliance with the law.
2. Figure Out Your Accounting Basis
When it comes to accounting for your small business, you have two options: cash or accrual.
If you decide to practice your accounting on the cash basis, you’ll recognize income when it is collected and expenses when they are paid.
On the other hand, if you decide on the accrual basis, you’ll recognize income when it’s earned and expenses when they’re incurred.
As a small business owner, the cash basis is almost certainly going to be the better option during their first year. For one thing, it’s much easier to understand. It doesn’t take years of accounting experience to know that cash-in minus cash-out gives you your profit (or your loss).
Most small business owners have enough to worry about during their first year to invest in the more complicated accrual system.
It’s far simpler to use the cash basis and makes it much easier to answer the most important question: how much money do I have in the bank?
3. Selecting a Depreciation Method
The Internal Revenue Service will allow a business owner to deduct up to $100,000 for most equipment and furniture, instead of writing it off over the next five or so years.
So, it probably seems like a no-brainer to take advantage of the IRS’ generosity.
However, if your business doesn’t have any profits after its initial year, you won’t be allowed a depreciation deduction. Instead, you’ll be allowed to carry it forward and use it once you hit a profitable year.
If you’re going to end the year without any profits, it’s probably best to elect for the slower depreciation option so that the majority of deductions will be accessible when you are enjoying earnings but also sit in a higher tax bracket.
Need Help with Your Company’s Tax Planning?
Accounting is important for any business, but especially during that first year. Even the smallest mistake with your bookkeeping now could snowball into something you don’t catch until it grows much larger.
If you’d like help with your company’s tax planning or any other accounting service, Contact Us today to find out how Marshall, Wazcheka and Patrick, CPA can be of assistance.