If you are new in business and never file a tax then the first question that comes to your mind during tax time is how business owners prepare their corporate income tax return in time and in a manner that helps them get the maximum business tax refund possible? Here are 7 very important considerations to take into account before filing your first corporate tax return.
Evaluate the Corporate Tax Return
If you are a first-time tax return filler then it is very important to analysis the copy of the Corporate Tax Return that you will file. It will help you understand which line items on the return you’ll be expected to fill in with amounts. There will be a few questions asked on the return that you will need to answer. Questions like what is the nature of the business, location of the business, age of the business, number of employees, etc. Make sure you have the answer ready.
As an industrialist, it is important to keep complete and accurate records of your business. Make sure your accounts have the correct categories of income and expenses so that you can properly file your returns.
Select an Accounting Basis
You can prepare the tax returns either on a cash or accrual basis. The cash basis works where income is recognized when a bill is collected and expenses are recognized when paid. The accrual basis works where income is recognized when earned, and expenses are recognized when incurred. Business policy-makers prefer accrual basis financial statements where you will need cash basis financial statements for corporate tax return preparation.
There is nothing to worry about as you can prepare the tax return on a cash basis even if the financial statements are prepared on the accrual basis. Once you choose an accounting basis you will have to stay with it during the whole life of your business. In general business with large revenues or inventories must choose the accrual basis.
Select a Depreciation Method
Select the deprecation method carefully as it will have an impact on your tax return. The Internal Revenue Service allows both “writing off the cost over five or seven years” and “first-year deduction of up to $100,000” for office furniture and equipment. Most business owners prefer first-year writing off. However, if your business doesn’t make any profit then you can’t choose the first-year deduction. The best practice is to take the slower depreciation route because in this process, the deductions will be available when the business has income, and you will have to pay a higher amount of tax.
Home Office Deduction
A lot of small business owners or sole proprietors have their offices at home. Regrettably, many of them don’t understand they can deduct costs related to their house office. These deductions include insurance, loan interest costs, maintenances, and services like internet service. You have to resolve what portion of your house is being used exclusively for business. There are different tax software to calculate the numbers. Both property holders and renters can be benefited from this deduction. However, if your business is in loss, then the home-office deduction is not acceptable but can be carried forward for next year.
If your business has independent contractors whom you pay, you can apply for a tax return for their non-employee compensation. Your employees must fill a W-2 form to identify their income and withholding tax. But your contractors will receive Form 1099-MISC from you when you make the payment. You have to submit a copy of form 1099-MISC to the federal and state government while filing your tax return. Contractors, who are corporations, are exempted from receiving this form. However, partnership companies with more than one member must receive the form 1099-MISC.
Keep Track of Automobile Expenses
Automobile expenses are one of the major expenses for a startup or existing business. Business owners must maintain a log to keep track of their automobile expenses. The log should include, where he/she visits, who was seen, the business purpose of the trip, etc. You can withhold the cost of operating these vehicles only if there are essential records to confirm business usage. You can use the standard mileage rate of 54.5 cents per mile in 2018 and 58 cents per mile in 2019 to calculate the costs like gasoline, oil changes, etc. The tax preparer will want to know the amount of time the vehicle is in service, and the number of miles it traveled for the year.
Salaries and Wages of Employe
You can withhold the payments of staff, including pays, wages, commissions, and taxable marginal profits for the business. Worker benefits programs, such as retirement plans are also considered as business costs, and you can withhold them from your tax. Though, payments to individual proprietors, associates, and LLC members are not considered as salaries because these owners aren’t staff. So you can’t withhold these business costs from your tax.
The information is general and covers a few items for the initial corporate tax return. So if you want personalized guidance for your business, it’s best to contact a qualified charted accountant to figure out how much money you can save in a year from the tax deduction.