The Procrastinator’s Guide to Small Business Taxes

Sujan Patel

Sujan Patel

Co-Founder at Web Profits
Sujan is the leading expert in digital marketing. He is a hard working & high energy individual fueled by his passion to help people and solve problems. He is the co-founder of Web Profits, a growth marketing agency, and a partner in a handful of software companies including Mailshake, Narrow.io, Quuu, and Linktexting.comBetween his consulting practice and his software companies, Sujan’s goal is to help entrepreneurs and marketers scale their businesses.
Sujan Patel

It’s almost April 18th. Have you filed your small business taxes yet?

The Small Business Administration reports that there are 28 million small businesses in the U.S., 22 million of which are “nonemployer” businesses made up of a solo entrepreneur. These small businesses run the gamut from indie retailers to consultants, from local restaurants to auto shops, and more.

One thing they all have in common: They’re required to file tax returns.

If this year’s tax deadline is approaching and you haven’t filed your returns—or even thought about them yet—the following guide will help get you on track with your business’s annual requirements.

Do You Owe W-2 or 1099 Forms?

If your small business has employees who are paid taxable wages, or if you work with independent contractors you’ve paid more than $600 in the calendar year, you likely should have sent out W-2 or 1099 forms by now.

In previous years, employers were required to submit copies of these documents to workers by January 31st but had until February 28th to file with the Social Security Administration (SSA). The Protecting Americans from Tax Hikes Act of 2015, however, bumped the deadline for filing with both employees and the government to January 31st, 2017, for both W-2 employees and contractors receiving 1099-MISC forms with compensation listed in Box 7.

Changed timing or not, we’re now past both of these deadlines. So what should you do if you owe W-2 or 1099 forms but haven’t filed them?

As Jean Murray of The Balance states: “The bottom line: If you must file late, file as soon as possible, to avoid additional fines and penalties.”

In the case of W-2s, you might be subject to a penalty of $50 per statement for failing to furnish W-2s to your employees on time. You may also be hit with penalties for filing late with the SSA. These penalties are based on when you file (at a minimum, $15 per return for W-2s filed within 30 days of their due date) and if your negligence was intentional (which might result in a penalty of at least $100 per return).

Penalties associated with past due 1099-MISC forms operate similarly, in that you may be subject to charges for both filing your forms late with employees (based on when you submit the correct statement) and with the government. These penalties begin at $30 per return if filed within 30 days, but increase to $60 or $100, depending on when you file.

No, it’s not fun being penalized for late filings. But if you’re in this situation now, it’s still in your best interest to file, as doing so will keep your penalties as low as possible.

Preparing Your General Return

On top of preparing returns for your employees and contractors, your business is also responsible for its general return—the one where you claim both your income and the expenses you’re counting against it.

The forms you need to file depend on the state (or states) where your business has a presence as well as your company’s structure. Partnerships, for instance, file different forms than LLCs, C corps, and S corps. Any tax filing software you use can walk you through choosing the right forms, as can the IRS website and the website of your state’s tax-collecting office.

Begin the process by making sure your books are up-to-date—that all of your income is accounted for and that all of your expenses are properly documented and organized by IRS expense category. At this point, you have three options for creating and filing your returns:

  1. Completing the process on your own using a tax preparation software program
  2. Filing your returns through a retail service like H&R Block or Jackson Hewitt
  3. Working with an independent accountant or agency

Both tax preparation software programs and retail services vary in the business tax filing options they offer, though most don’t go much more complex than assisting sole proprietors (or those with pass-through LLCs) who are filing Schedule Cs. Of these programs, FitSmallBusiness.com’s Crystalynn Shelton recommends TurboTax in her breakdown of the merits of three different programs.

If your needs are more complex, you likely need to work with an accountant or agency. Be warned, however, that it might be difficult to secure the necessary appointments this late in the game. William Perez of The Balance reports:

“If you need your taxes done in a hurry or you want the convenience of dropping by an office without an appointment, going to a retail tax office like H&R Block is ideal. Independent accountants often work by appointment only, and popular accountants might schedule appointments up to a year in advance.”

If, due to your delays, you wind up going it alone on your taxes, keep the following tips in mind:

  1. Document, document, document. Sandy Botkin, a CPA and attorney interviewed by CBS News states, “Every small business owner must keep an accurate tax organizer, and it’s not the same thing as an expense log. A tax organizer has all the questions that the IRS requires you to answer about travel, entertainment, and other expenses. It will bulletproof your records and eliminate procrastination, and if you’re audited, it shifts the burden of proof to the IRS.”
  2. Make sure you don’t miss possible deductions. One of the advantages of going through a tax professional is their knowledge of the tax code and its many benefits for business owners. Check out Wagepoint’s “Comprehensive List of Small Business Tax Deductions” for money-saving options you may otherwise miss.
  3. Look into an extension. If it looks like there’s no way you’ll be able to file by the April 18th deadline, you may be able to request an extension from the IRS of up to six months (unless you’re living outside of the country). Keep in mind, however, that you may be assessed penalties for filing late, and that any tax you’re required to pay will likely still be due on the 18th. Having an extension granted may, however, enable you to have your returns checked and approved by a tax professional.

It should go without saying, but if you’re handling tax preparation and filing on your own, stick to the letter of the law. If you’ve received a 1099-MISC as a record of payments sent to you from a client, make sure that income is claimed on your return. Because 1099-MISC forms are filed with the IRS, claimed income that falls below what the IRS has recorded can be a major red flag.

Furthermore, make sure the salary you claim for yourself meets the IRS’s standards for reasonable compensation. If you’re incorporated, Botkin suggests that claiming excess income after a good year can leave you in a vulnerable position:

“Say you typically pay yourself $100,000 a year. After a good year, you decide to increase that to $300,000. You have to substantiate a reason for the increase, or part of the money can be disallowed by the IRS as unreasonable compensation. Then it can be taxed at the corporate level and distributed as a dividend. And then you’ll pay tax on the dividend.”

Ultimately, your odds of being audited as a small business are slim; Tony Nitti, writing for Forbes, pegs your overall probability at around 1%. That said, even if you’re starting late, it’s wise to treat your tax filings with the seriousness they’re due. Nothing interrupts your small business’s ability to stay productive like a visit from the IRS.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.
Sujan Patel

Sujan Patel

Co-Founder at Web Profits
Sujan is the leading expert in digital marketing. He is a hard working & high energy individual fueled by his passion to help people and solve problems. He is the co-founder of Web Profits, a growth marketing agency, and a partner in a handful of software companies including Mailshake, Narrow.io, Quuu, and Linktexting.comBetween his consulting practice and his software companies, Sujan’s goal is to help entrepreneurs and marketers scale their businesses.
Sujan Patel

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