When it comes to preparing business taxes, you need a foolproof plan. You do not get another chance to correct your mistakes. If mistakes are committed, that will mean only one thing – you will lose money that you could have easily saved otherwise. Whether you are preparing things on your own or with the help of a licensed professional, in either case, your tax returns will be scrutinized thoroughly by the IRS (Internal Revenue Service). Following are some of the guidelines that if you follow can make things a little easier.
The Type Of Tax Form You Need
Depending upon the type of business you are running, you may have to fill out different types of forms. For example, if it is a corporation, you will have to use form 1120 to file return for business taxes. Likewise, there is form 1120S for S corporations and form 1065 for partnership firms. If it is a sole proprietorship, you will have to submit schedule C with your form 1040. Once you know which form you have to process, the next task is to gather information that you need to provide in that form and the documents that you need to attach with the same.
Filling The Information
The information section may vary significantly depending upon the type of form you are using. Still, all forms generally carry a primary information section at the top of the page. This section should include basic details, such as incorporation date, industry code, accounting method, tax identification number, business address, business name, and other such things. From page 2 to 4, you will have to answer questions related to your specific business type. If you have difficulty in understanding certain sections while you are preparing business taxes, you can give a call to the IRS and get things clarified.
Details About Your Income
The profit and loss statement mentions the gross income of your business at the top of the page. The line one of the form generally requires you to enter your gross sales or receipts. Below this, you have to transcribe the cost of goods sold. Other income details must be provided below this line on appropriate sections. You can obtain your total loss or income by deducting the cost of goods sold and then adding extra income, if any. Before you move on towards deductions, do not forget to verify that the total income (or loss) on your profit and loss statement matches with the total income (or loss) on your tax return form.
The Deduction Section
Enter the expenses from your profit and loss statement in the deduction section provided in the form for business taxes. If there is not enough space out there to record all expenses, you can simply mention the total amount of expenses at the bottom of this section and attach a separate sheet for detailed list of expenses. Make sure you mention only those expenses that are tax deductible. Such deductions may include section 179 elections, special bonus depreciation, and other depreciation that are not in the books. Calculate the actual amount of depreciation and mention it in the appropriate fields.
You must submit the form with the profit and loss statement attached to the same. If it is a sole proprietorship, the process is complete. But, in case of partnership firm or a corporation, you must also copy the information from your balance sheet to the section provided in the form for business taxes; it should be on page 4 or 5.