How to Successfully File Small Business Taxes

It’s tax season! And tax-filing deadlines are rapidly approaching. As a small business owner, you should know these dates: 

• March 15, 2024: Deadline for any corporation set up as a partnership, S corporation, or multi-member LLC.
• April 15, 2024: Deadline for individual filers, sole proprietors (Schedule C), C corporations, single-member LLCs, and LLCs taxed as a corporation.

As you prepare to meet these deadlines, here are some things you can do to ensure that everything is being done correctly:

Know your tax forms

Small business owners face several different types of taxes, from income tax to employment tax. Each of these taxes come with their own set of forms that need to be completed and filed, and these forms can differ depending on the industry your business is a part of or even the specific classification your business is registered as. For a better understanding of these different types of business taxes, check out our past blog on the topic.

Maximize your deductions

There are ways to reduce your taxable income if you spend strategically and make the right deductions. Some commonly overlooked deductible expenses include:

• Home office deduction: If you’re using a part of your home to run your business, you can deduct expenses for the business use of your home. This deduction is available for homeowners and renters alike.
• Office supplies/equipment: If you purchase any necessary business supplies, such as computers, printers, software, etc., make sure to keep receipts and records of these purchases. That way you can have these expenses redacted.
• Business travel expenses: If you’re traveling for business, then you can deduct travel expenses, such as airfare, hotels, and meals. However, these expenses must be ordinary, necessary, and directly related to your business. Once again, you must be keeping receipts and records of these purchases if you want them to be deductible.
• Vehicle use: If you have to drive for your business, you can deduct car expenses. You can do this by either keeping track of your actual expenses or by using the standard mileage rate determined by the IRS.
• Education and training: If certain education and training is necessary for maintaining or improving the skills required for your business, then these costs can be deductible. Examples of educational costs may include seminars, webinars, or relevant industry classes.
• Health insurance premiums: If you’re self-employed, you can deduct premiums for medical, dental, and other qualifying long-term care insurance for yourself, your spouse, and your dependents. 

For more information on deductions your business can make, refer to IRS guidelines.

Use tax credits

While many small business owners will look for tax deductions, many will overlook business tax credits. Tax credits are offered by federal and state revenue departments to incentivize certain business practices, such as utilizing green energy, diversity hiring, or pro bono work. 

Some examples of tax credits you may not be aware of include:

• Work Opportunity Tax Credit (WOTC): The WOTC can be claimed by employers who hire individuals facing barriers to employment, such as qualified Temporary Assistance for Needy Families recipients, ex-felons, veterans, etc.
• The Employee Retention Credit (ERC): Sometimes called the Employee Retention Tax Credit or ERTC, the ERC is a refundable tax credit for certain eligible businesses that had employees and were affected during the COVID-19 pandemic.
• Alternative Motor Vehicle Credit: Individuals who qualify for this tax credit must be the original buyers of eligible vehicles powered by alternative energy sources for business or investment use.
• Retirement Plans Startup Costs Tax Credit: Eligible employers can qualify for this credit to cover the initial costs of establishing retirement plans like SIMPLE IRA, 401(k), or SEP.

Stay informed on new tax laws

Tax regulations are always changing, especially for business owners. Make sure that you’re aware of these changes and know how they may affect your business tax filing. Some examples of changes that impact tax filings in 2024 include:

• The IRS has delayed the requirement that payment apps and online marketplaces (PayPal, Venmo, Amazon, Shopify, etc.) issue 1099-K forms to taxpayers who receive over $600 in digital payments. That requirement was supposed to go into effect for the 2023 tax year, but the existing thresholds will remain in place ($20,000 and over 200 transactions). For tax year 2024, the IRS plans to phase in the new reporting requirement by introducing a $5,000 threshold.
• The meals and entertainment deduction rules have changed. Businesses were allowed to deduct 100% of meal expenses in tax year 2022. For tax year 2023, they may deduct only 50%. Some meals, such as those for events held for employees, customers, or the general public, are fully deductible. Entertainment expenses (such as concert or theater tickets) are no longer deductible.
• Pass-through business owners (Sole Proprietorships, Partnerships, LLCs, and S Corporations) may deduct 20% of qualified business income if their total income is not more than $182,100 (if filing single) or $364,200 (if filing jointly) before the QBI deduction. Those amounts are up from 2022’s income caps of $170,050 (single) and $340,100 (jointly). For tax year 2024, the income caps will be $191,950 for single filers and $383,900 for joint filers. Some business owners may not be eligible for the full 20% deduction if their business is considered a “specified service trade or business.”
• The tax year of 2022 was the last year businesses could deduct 100% of qualified bonus depreciation for fixed assets. For tax year 2023, the maximum deduction is 80%, with the deduction decreasing by 20% each year in the years to follow (i.e., 60% in 2024, 40% in 2025, and so forth). Section 179 depreciation is a set dollar limit you can deduct for new or used business assets. The Section 179 depreciation limit for 2023 is $1,160,000 for federal purposes per the IRS draft of 2023 instructions for Form 4562. States will have varying dollar limits for Section 179 depreciation. Note that vehicles have separate limits for both bonus depreciation and Section 179 depreciation.

Reach out to professionals

Filing your taxes can get confusing or overwhelming. The best way to ensure that your small business taxes are being done correctly is by consulting with a professional. For legal concerns, reach out to a lawyer. If you have accounting questions, reach out to an accountant. Don’t be afraid to get help from experts – it’s part of their job to help you!