Tax return day may seem like a long way off. Business tax returns can—depending on the business's tax year and type of organization—be due from March 15 for partnerships meeting the first deadline to October 15 for sole proprietors who have filed for extensions. But no matter when you plan to mail your return, now is the time to get your business ready for tax season.
“It's very important business owners, especially small-business owners, prepare for doing their taxes," says Paul Joseph, an attorney and certified public accountant at Joseph & Joseph Tax and Payroll in Williamston, Michigan.
“The reason is that the better they're prepared, the more accurate the return will be when they file it," Joseph adds. “By preparing in advance they are more likely to make sure they don't miss any deductions or expenses."
Why Getting Ready Early is More Vital Than Ever
This year is unlike any in recent memory thanks to the many changes to business taxation wrought by the Tax Cuts and Jobs Act of 2017. And that means it's more important than ever to start getting ready early to file a 2018 tax return.
“For most small businesses the preparation of income tax returns will be much more difficult for 2018," says Steven Hanson, a certified public accountant at Piehl, Hanson, Beckman in Hutchinson, Minnesota.
That may be true even if you hire a tax preparer.
Keep in mind that you have to pay your taxes by April 15 and your first quarterly estimated payment is also due on April 15, so the amount of outgoing funds may be substantial. Plan for it.
—Paul Joseph, attorney and certified public accountant, Joseph & Joseph Tax and Payroll
“With the changes to depreciation, the disallowance of like-kind exchanges for equipment, elimination of entertainment expense deduction, the new qualified business income deduction and a host of other provisions, we expect our preparation time to increase by a minimum of 20 to 30 percent," Hanson says. “That is a huge increase that I don't think businesses are expecting."
Steps to Get Your Business Ready For Tax Season
With all that in mind, the first step for many firms this year may be to get a tax adviser. Even a business owner with experience doing the firm's taxes may want outside assistance this time, and want it soon.
“Select a tax adviser carefully and don't delay," says Douglas Stives, a certified public accountant and accounting professor at Monmouth University in New Jersey. “Expect higher fees this year. You may need to negotiate even to schedule a meeting with some advisers."
“Seek advice carefully," Stives adds. “If the person or firm you have used is not responsive, make a change. Don't just send your information to a tax preparer without arranging a meeting or at least a phone call to discuss your situation and work through decisions that will affect your tax returns."
Once you have selected an advisor, gather the necessary records.
“The best practice for tax preparation is to gather up all of your income and expenses for 2018," Joseph says.
If you have digitized your business financial information, generating the needed reports and records should be faster and easier than with traditional paper-based accounting. If you haven't, now is a good time to start.
“Business owners should utilize technology to maintain their business records," Stives states.
Now is also time to begin gathering funds to make any necessary tax payments. Many businesses are required to make quarterly estimated payments throughout the year. However, even if you're up-to-date on quarterly estimated tax payments, Joseph urges business owners not to assume they will have enough on the due date.
“Keep in mind that you have to pay your taxes by April 15 and your first quarterly estimated payment is also due on April 15, so the amount of outgoing funds may be substantial," Joseph says. “Plan for it."
When You Might Delay Filing
The sooner you get your return ready, the sooner you will know how much money you'll need on your due date.
However, although filers must pay any taxes due on their original filing date to avoid interest and late payment penalties, many taxpayers may opt to not actually file at that time. Seeking an automatic extension can give you more time to make sure the return gets done properly.
“I never file my tax return on time," Stives says. “I file for an extension until October 15. This gives me more time to gather the necessary records and make certain I am taking advantage of all available deductions and credits.This is more important than ever this year since there are so many major changes in tax law."
On the other hand, some business owners may file early, especially if they are due a refund, Joseph notes.
Hanson says that it's a good idea to be ready to file as early as feasible, even if you seek an extension.
“Most of our clients like to know where they are at, especially if they owe tax," Hanson says. “So the sooner they know, the better they can prepare."
A Mixed Bag This Tax Season
The good news is that many small businesses will pay less this year thanks to changes from the 2017 Act. However Stives says that business owners may also find preparing this year's return takes longer and involves more uncertainty.
“Probably the most complicated part of the new law is the Qualified Business Income (QBI) deduction, which will save many small-business owners money," Stives says.
But be careful, he warns, since the provision can be tricky to navigate.
“There are both pitfalls and opportunities under the new act," Joseph says. “In some cases, there has been simplification for individual tax returns that are easy. However business returns have become much more involved and complicated, including most small business returns such as partnerships, LLCs and corporation returns."
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