Small Business Tax Tips: How to Set Your New Business Up for Tax Success

Tax season as a first-time business owner can be complicated and stressful. You go into business to make money, but making money usually means owing taxes—and the thought of owing a large amount on your business taxes when you're just starting a business can be scary.

As a new small business owner, you know that every penny counts, and that minimizing taxes may be the difference between a profitable business and one at the risk of failing.

As you enter into tax season as a first-time business owner, here are some small business tax tips to set your new business up for tax success.

COVID-19 Tax Implications

Before we jump into the standard tips on how to set your business up for tax success, we would be remiss if we didn't call out that we are currently in an unusual time. The coronavirus/COVID-19 pandemic has impacted our everyday lives, including our taxes.

For starters, the IRS announced that Tax Day (April 15) is being moved to July 15. The deadlines for filing individual tax returns and for making payments of 2019 taxes owed are being extended by 90 days.

We cover all of your questions regarding this issue in our recent blog post. However, know that the payment deadline extension includes individual taxpayers, self-employed individuals and all entities other than S Corporations.

For more information on the IRS tax payment deadline extension check out the IRS website.

Consider Tax Regulations When Choosing Your Business Entity Type

When tax season comes, it’s important to understand your options for filing business taxes.

IRS requirements for small business taxes can be more or less complex, depending on the type of business entity you've chosen.

Deciding what business entity type is right for your business and goals is critical, especially when it comes to tax time. We provide insight into the different entity types, including S Corporation, C Corporation, nonprofit and LLC, so you can set your business up for success.

For example, LLC taxes are usually quite simple, while dealing with S Corp taxes can be more complicated and require a specialized S Corp tax return. However, filing as an S Corporation could save you tax dollars. Meanwhile, if your company is a C Corp, you need to pay C Corp tax rates on any qualifying corporate profits.

We provide a free download called the Complete Business Entity Guide that will assist you in making this decision with details on the tax repercussions and benefits to the various business types. This is a great place to learn the difference between pass-through taxation and federally taxed as a partnership.

The U.S. Small Business Administration is also a good resource for learning more about business structures and launching a business.

Get an EIN for Your Business

Get an Employer Identification Number (EIN), which is a nine-digit number assigned to your business by the IRS. The EIN/Tax ID number can be thought of as a Social Security number for your business. It is usually required to open a bank account in the name of the business and to properly pay and account for any wage/payroll employees of your company.

If there are multiple owners in your business, then you will need an EIN. If you set up a corporation for your business or elected to be taxed as either an S Corp or a C Corp, you’ll also need to get an EIN. If your business has any employees, then you will also need an EIN.

Keep Your Receipts

Keep all of your receipts related to your business and track expenses diligently. Many of those receipts are for goods and services that can be deducted on your taxes, offsetting taxable income.

If you made a purchase this year on new office equipment, it needs to be documented. If your business paid the internet and electricity bills, document it. If you paid for any software systems, document it.

Depending on your business structure, there are specific deductions you can take for certain structures, plus deductions that apply across all structures. Having proof of each and every expense is critical to find out how much you owe in your taxes and the types of deductions you may qualify for.

Take Advantage of Different Tax Breaks Available

Speaking of deductions and tax breaks that you may qualify for, many new small business owners are not aware that the tax code offers a number of tax credits for businesses. These may be able for you to take advantage of for the first time you file your business taxes, provided you qualify.

You can find a full list of business tax credits on the IRS website, but a few to consider include, Work Opportunity Credit, General Business Credit, New Markets Credit and Disabled Access Credit.

To claim a general business credit, you will first have to get the forms you need to claim your current year business credits.