One of the most important things in the life of any entrepreneur is filing for taxes. This procedure is seen as complex and stressful by the majority of people since not doing the paperwork properly can produce serious consequences and fines.
The forms you need to submit will depend on the type of business your run. However, whatever kind of services or products you provide to the customers, you want all your taxes paid in full and in time.
Here are some of the most important tax forms entrepreneurs should get to know and understand.
Sometimes your home and working space may be one and the same. This is especially true for those starting a new business from the ground up. However, if you have invested in certain modifications to make part of your household more suitable for business than you have the right to deduct those expenses.
Still, there are rules at what qualifies as a home improvement for business purposes. It can be confusing at times but you can always get IRS help with taxes of any kind by simply visiting their website and getting familiarized with the requirements. In the case of Form 8829, that section of your home (not necessarily a different room) must be used for business purposes only or you must use it a significant portion of time during working hours.
These expenses can be calculated in two different ways. A more simplified option allows for a standard $5 deduction per each square foot used as a home office (up to a maximum of 300 square feet). On the other hand, you can report actual expenses and include supporting documentation such as bills, receipts, etc.
However, the 8829 Form doesn’t cover only home improvements. Qualified expenses also include utilities such as electricity and water, necessary repairs, telephone charges, and even part of the mortgage.
One of the most used tax forms, the 1040-ES needs to be filled by anyone who has earned an income that was not withheld by an employer. It is used to help you figure out and pay your estimated excises, such as net profits from your business and self-employment tax.
This total tax liability is in some cases based on the bracket income remaining after you have already made your standard deduction. But when it comes to entrepreneurs who have spent a lot of money on their business, they will have to go through a much more rigorous tax deduction process.
Schedule C (1040)
This form is used to report income or loss from a business you operated or a profession you practiced as a sole proprietor. You will have to report on the total revenue of the year in one section minus the cost of goods sold and your business expenses in another.
It would be helpful if you would categorize the expenses section by type. This will allow you a better insight into which costs are deductible. You will be able to get deductibles for costs connected to advertising, supplies, office expenses, payroll, and inventory.
Every employer who pays $600 or more per year for services performed by an employee must file this form. And it’s done for each worker separately. It has personal information about the worker but it also reports all withholding, including Social Security, Medicare, and income taxes.
Filing 1099-MISC is necessary for each person to whom you have paid at least $600 during the year in rents, prizes and awards, services that were performed by the independent contractors, medical and health care payments, and attorney payments, among others. Also, you will have to use this form to report if you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.
If you’re not sure whether you need to make this type of report you can always check with the IRS and your tax attorney. Don’t forget that not submitting necessary forms in time or intentionally neglecting to do this can get you fined. You might get as much as $250 per form.
The 4562 is used to report depreciation on equipment, furniture, automobiles, and other property in your business. It’s a way to identify how much a certain company is worth at any given point in time. All the assets claimed by the business will be valued at their total sum.
Tangible assets (those you can touch or hold in your hand) are deprecated (reduced in value by a certain percentage) while intellectual property or intangible assets are amortized (reduced in value by a certain percentage each year).
This form is used to request an Employer Identification Number or EIN from the IRS. This number is assigned to help entrepreneurs with tax filing and reporting purposes. The EIN has 9 digits in total and a hyphen between the second and the third number. It’s a very important step since it will be your unique identifier to the IRS. Also, it will be linked to a bank account and some other aspects of your business. This form can be submitted online, by mail or fax, or it can be done in your name by your tax professional.
This report is used to account for all significant contributions you as an employer has made to your employees’ IRAs, pensions, insurance contracts, and other important programs. By submitting 1099-R, you will be able to deduct your business contributions to these funds and also minimize your tax obligations. You need to file this form for each person to whom you have made a designated distribution of $10 or more.
These are just some of the most important tax forms you need to know and understand as an entrepreneur. If you’re a novice when it comes to this, it wouldn’t be a bad idea to consult with a tax accountant who will explain to you how things work and what’s required of you. Don’t forget, not doing this in time can get you fined and cost you a significant amount of money.