Small business taxes 101 - DIY Do's and Don'ts

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Small business taxes 101: what's a DIY-do and a DIY-don't

Tax season is right around the corner. Are you a business owner? Should you hire a professional? It’s tempting; they're are in the U.S. tax code, and an average person can’t know the complex U.S. tax rules. Here’s when you should DIY your small business taxes and when to call a professional.

When to DIY your business taxes?

Doing your taxes isn’t as intimidating for most business owners as you think. But every business owner has different taxes. Here are some ways to know if you can DIY your taxes.

They’re simple!

Business ownership is common today. From the freelance worker to the solopreneur and the startup business owner, there are more ways to establish yourself as a business without forming a corporate entity. You can file your business taxes with ease if this sounds like you. Let’s say you’re a freelancer or a gig economy worker. Your client or gig will supply a 1099-MISC form. These forms are straightforward; just enter the income you earned and deduct any client's expenses for your materials and services. What if you have multiple clients, i.e., you’re a consultant, a web designer, or any business where you had numerous clients throughout the year? If you keep an updated report of your earnings, you can use this information to file your taxes.

You have low income

Most businesses don’t generate significant revenue in the first few years of starting their business. As a rule of thumb, if your taxes are straightforward and your earnings are below $50,000 for the year, you can file your taxes easily. This usually goes for solopreneurs, startup business owners with only a handful of employees, and freelance/gig workers.

Usual or standard deductions

Business owners can claim a myriad of deductions. However, these are pretty difficult to calculate. You also don’t want to claim too many deductions and risk an audit. What if your business isn’t eligible for many deductions? You may get away with claiming some simple deductions. These deductions include advertising, bank fees, insurance, business car use, and your home office. What about your taxes? You’re a freelance or gig worker without an established business. You’re not filing a business tax return, only including your income on your taxes. You can get away with filing your taxes DIY while claiming the. For personal taxes, the standard deduction is $12,400 for solo filers, $18,650 for heads of households, and $24,800 for married couples filing their taxes together.

You have access to tax filing software

Tax filing software is your strongest tool when filing business taxes. Filing software makes tax time less stressful. The software gives you an easy platform to work with. You can easily input your information, revenue, and deductions, all in one place. Most tax software will also file your return for you and can track your refund.

Filing single or jointly

This advice is for solopreneurs and freelancers who report their income on personal taxes. Taxes can get complex when you’re married but filing separately, divorced, are the head of a household, and claim dependents. If you’re single, married, filing jointly, and claiming no dependents, your taxes are more manageable, and you’re faced with fewer liabilities.

When to hire a professional

While many resources make tax filing a breeze, some business owners should hire a professional. Here’s when it’s time to hire or outsource an accountant.

Complicated business taxes

What if your business taxes aren’t straightforward? For example, do you have multiple deductions, several expenses, hire a large staff, and face additional liabilities? It’s best to hire a professional to ensure you don’t get audited.

Your business made a lot of money

Whether you’re a small business owner or a solopreneur, you should plan on hiring a professional if you make more than $100,000. Those in a higher income bracket will more likely get audited than those in a lower income bracket. Even if your taxes are straightforward, a professional will ensure you comply. A professional can inform you of the following best steps if you're audited.

Abnormal tax situations

Businesses can find themselves in abnormal tax situations. For example, maybe you have some unusual tax write-offs. It’s best to hire a professional to see what you can write off and what you can’t.

Were previously audited

No one wants to deal with a tax audit. If you were previously audited, this is enough reason to hire a professional. Keep in mind that hiring a professional doesn’t automatically serve as a safeguard against an audit. But a professional has extensive knowledge of the U.S. tax code, lowering your risk of an audit. They can also find errors and inconsistencies that you missed if you did your taxes.

Lots of business stock investments and holdings

When your business starts generating more revenue, it’s wise to invest in securities, holdings, stocks, and other investments. You can increase your firm’s net worth and achieve better business financial security. However, you need to report these investments on your taxes. A professional can navigate these complex taxes, ensuring you report all necessary transactions and the income you generated from your expenses. 

Too many business expenses and deductions

While some business deductions can be easy to navigate DIY, too many deductions can be challenging to organize and calculate. In addition, a professional knows some deductions that maybe you didn’t know about.

Certain businesses and niches

Certain professionals have more tax liabilities because of the scope of their business and their investments. Take property investors as an example. Since you’re investing a lot of money into your property, there are many deductions you can claim. There are also certain liabilities when reporting your income, such as reporting the income you receive based on rent. You also have specific taxes to pay, such as property tax. Keep in mind that it’s best to find a tax preparer with expertise in your exact business niche. This will help protect you from an audit.

How to choose tax filing software

Did you decide to invest in tax filing software? You have many tax software options. Here’s how to know you’re choosing the best tax software.

The software includes state returns

Does your tax software include state tax returns? You’ll be surprised how many don’t or will file a state return for an extra fee. This doesn’t count for all taxpayers. Many states don’t have an income tax. Therefore many taxpayers don’t have to file a return.

The price

Many tax filing platforms promote a free tax filing service. But this is only restricted to taxpayers with easy returns, such as those with one or two W-2 forms. Your taxes are more complex if you own a business or are only filing for your freelance gigs. You’ll more than likely have to pay for your tax filing software. Create a budget and shop around. Know your tax situation and find software that offers what you need. Compare different software and read reviews.

Business-specific software

With small and startup business owners dominating the landscape, more tax software caters to their platform and services to small business owners. If this is your first time filing your taxes, choose this type of software. Business tax software can help you navigate complex business taxes, easing the tax process and ensuring you comply.

Connects you to tax professionals

These days, you can get your taxes done professionally without visiting a CPAs office or even hiring one. Specialty software connects you to tax professionals online. All you have to do is answer a few questions, upload your documents, and a tax professional can file a return for you.

Small business taxes are easier with us 

No business owner looks forward to filing small business taxes. But many business owners aren’t sure if they should file their taxes or seek help from a professional. While simple business returns and freelance returns can be done DIY, most businesses will need help from a tax professional.

There’s another solution for businesses: software can connect you to a CPA. Your CPA will have expertise in your business tax requirements. All you have to do is upload your documents and sign your return. Are you ready to get started?

This article is brought to you by Lambers.com. Engaging teachers, great content, and time-proven results for over 50 years! The Lambers 10 course Tax Resolution Series, taught by the popular Eva Rosenberg EA, CTRS. is designed to provide a solid foundation for tax practitioners to handle all areas of IRS representation. This course will make it possible for you to get your fair share of business in this 400+ billion dollar arena. High quality, relevant content designed for your success!

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