Business tax return preparation is one of the most basic accounting functions at a company. It also is one of the most important, and owners and operators should understand how it differs from doing personal taxes. Pay attention to these six ways that business tax preparation can be different.
Rates
Tax rates for companies can be quite different compared to personal ones. Especially if this is your first year dealing with business tax return preparation, you might be shocked by how far off the rates are from what you pay personally. Ideally, a business owner will discuss the rates with an accountant or preparer at the start of a company's life. This will give them room to plan their taxes preferentially to minimize their potential bills or even get refunds.
Deductions
Generally, businesses are eligible for far more deductions than individuals are. Virtually anything that counts toward the operating expenses of a business is likely to be deductible. This is great in terms of keeping your bill under control. However, you also need to document receipts and itemize everything to get the most from it. Especially if you have many employees, you have to hammer the importance of always collecting, copying, and storing receipts so the company can maximize its tax benefits.
Employees and Contractors
A company also has to deal with tax forms for its employees and contractors. Failing to do so can incur significant penalties. Once more, these are deductible expenses.
Quarterly Filings
Businesses are supposed to file quarterly estimated tax payments on a range of things. These include the company's estimated earnings and payroll obligations. If you don't file quarterly, the government imposes a penalty.
Capital Gains
Companies often sit on or invest money. While individuals also pay capital gains, businesses can be staring at some huge numbers. If a company has to hold onto $1,000,000 to fund ongoing operations, for example, it probably wants to get interest from the bank for letting the money sit. That interest incurs capital gains taxes.
Notably, businesses don't have access to tax-deferred accounts. You can't put investments and savings for a company into a 401k, for example.
Credits and Programs
Many businesses take advantage of government programs and credits to improve their operations. From energy efficiency to hiring new employees, there are options for just about any improvement. However, you have to document everything meticulously to claim the credits on your organization's taxes.
To learn more about business tax preparation, reach out to a service provider near you.
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