It’s a statutory requirement for businesses to file returns and pay taxes within the stipulated time, the official tax-filing period. There are numerous benefits of filing your tax returns on time, including avoiding interest and penalties, capturing the correct picture of your income status, and getting tax refunds in some cases.
Whereas the nature of your business determines the type of tax you have to pay and how you pay, planning makes it easier to prepare accurate returns during the tax season. A small business accountant who also doubles as a tax professional can help you with the timely filing of your tax returns.
Although, tax consultants typically charge a tax preparation fee for offering taxation filing services to you or your business. Since there isn’t a uniform charge rate for tax preparation fees, the charge often depends on your tax accountant and your state or region.
Common Taxes Prepared by Businesses
Most businesses are required to file tax returns as follows:
- Income Tax
Except for partnerships, every business is required to file annual tax returns before the specified deadline. Federal income tax is paid on an ongoing basis, and all other businesses must file and pay taxes on every income they earn or receive within the year.
On the other hand, Partnerships file an annual information return that shows any income, gain, deduction, and loss accrued during the year. Each partner uses this information, usually reflected as profit or loss, to post a profit or loss while filing their tax returns.
- Excise Tax
Governments raise funds by imposing taxes on the sale of various goods and services. These kinds of taxes are known as excise taxes, and depending on their nature, they can be charged to manufacturers, retailers, or consumers. Businesses subject to excise tax are required to file a Form 720 every quarter of the year.
- Employment Tax
If you have employees, it’s also required to pay state employment taxes or state payroll taxes. Although state employment taxes vary by state, they include unemployment taxes, temporary disability insurance, and other local taxes. Income tax can also include taxes withheld from employees.
As the employer, you have a legal obligation to collect and submit all taxes withheld from employees to the federal government. However, note that failure to comply with employment tax requirements can lead to criminal proceedings because your business is considered to be stealing from its employees and the government.
- Self-Employment Tax
You’re self-employed when you engage in full-time or part-time activities that generate a profit. Therefore, you’re considered self-employed if you’re an independent contractor, a sole proprietor, or even a partner earning commissions in an affiliate program.
You’re required by the law to prepare quarterly taxes as self-employment income if you made USD$400 or more as net earnings from self-employment or USD$108.28 as income as a church employee. Inaccurate filing of self-employment income can subject you to financial difficulties since the Social Security Administration uses self-employment income to calculate your social security benefits.
- Estimated Taxes
As mentioned earlier, taxes are paid on an ongoing basis, meaning that you pay as you earn income during the year. However, there may be instances when your income tax is insufficient, but you have received significant income, including alimony, capital gains, self-employment income, and dividends. Filing estimated taxes can help bridge the insufficiency gap.
You must file estimated tax returns whenever your forecasted amount is USD$1000 or above. However, you need to understand your estimated tax group since there are different rules guiding estimated taxes for different categories of workers.
Tax Preparation Fees Deduction
Before, taxpayers were able to claim tax preparation fees deduction. But after the implementation of the Tax Cuts and Jobs Act (TCJA), the tax code of the United States has been overhauled. And one of the significant changes is that individuals with only employment income cannot deduct tax preparation expenses, such as the professional fee charged by small business accountants for tax preparation.
However, the Internal Revenue Service (IRS) allows business people who report self-employment income to deduct tax preparation fees from their tax returns. This tax preparation fee covers most expenses associated with the tax preparation process, including software purchases.
Tax preparation fees are considered ordinary and necessary costs of running a business, but only those with self-employment income can claim a deduction. That said, whether you are self-employed or a full-time employee registered as an independent contractor, working with an experienced business tax consultant can help improve your tax compliance and guide you as you navigate the technical aspects and process of filing your return. In addition, a tax accountant who covers different tax situations for small businesses can show you how tax preparation deduction works and determine if you qualify.