4 Tips to Prepare for Small Business Tax Returns
If you are filing income tax return for your small business for the first time you would like to explore the options available to you. You may either handover the entire process to a professional or file the tax return on your own. Actually, the process is so simple that you do not need the help of an expert provided you were methodical from the very beginning and have all the information with you. The following suggestions will help you file the returns accurately.
Choose the Right Form and Inspect It Thoroughly
Go to the IRS website to determine the form that applies to your business. Go through the form and the questions asked therein. Make sure that you have the information required for answering those questions.
You will see that the there are basically two types of questions, company information and financial information. Company information relates to nature of business, location and whether this is the first year you are filing a business tax return. Financial information relates to accounts; income and expenditure and profit or loss thereof. All businesses are required by law to maintain proper accounts.
Primarily, there are two accounting methods, receipt or cash based or accrual based. In cash based accounting only that income and expense is recognized that the business has actually received or paid. For example, you might have raised a bill for services but not actually received cash against that. Under cash based accounting you will not show this as income. Similarly, you claim only those expenses that you have actually paid for.
Cash based accounting is much simpler but accrual based accounting is more accurate and will stand you in good stead when your business grows. However, once you have settled on one accounting method, you will have to follow it throughout the life of the business.
Depreciation on Fixed Assets
According to rules you are allowed to claim deduction up to $100,000 on most equipment, furniture and fixtures. However, whether you want to write off the expense in one go or spread it over five to seven years depends upon certain conditions. The IRS does not allow you to take the first year write off route if there is a business loss. Moreover, it is always better to claim the expense over a period so that a deduction is available in the profitable years.
If you are running a business from home, you should consider claiming office accommodation compensation for a portion of the house. It pays to measure the area and claim proportionate deduction as this is a tricky business deduction. You must be able to establish that the area is used exclusively for business.
NOTE: Information on this site is not guaranteed to be accurate. Some content has been compiled from 3rd party sources or feeds. If you are aware of incorrect or outdated information, feel free to contact us.