Why it’s helpful to file your business taxes early—and how to do it

It’s critical to pay your business taxes on time, but this year it’s even more important to file early if possible. With tax season just around the corner, experts predict that the Internal Revenue Service (IRS) will be even more overwhelmed and understaffed than they were last year, due to IRS staff cuts, complicated new tax credits, and delayed tax deadlines from the pandemic. 

As a result, businesses may have a tough time getting ahold of the IRS for questions or clarifications. Plus, any tax refund you’re owed could be delayed past the typical three-week turnaround time. That’s why it’s a good idea to consider filing your taxes early. 

When you file early, you can:

• Potentially get a faster tax refund
• Spread out your total tax payment for 2021 and your first quarterly payment for 2022 
• Avoid having to ask for a tax extension
• Limit stress as the deadline approaches
• Potentially work more efficiently if you space out the tax preparation process
• Avoid making costly mistakes on your tax return

8 steps to take to file your taxes early

This year’s tax filing deadline is April 18, 2022, but you can file any time before then. No matter where you’re at in the tax preparation process, take these eight steps to get ahead of the game. 

Step 1: Talk to a business accountant

Unless you’re well-versed in tax rules and have successfully filed business taxes on your own before, it’s helpful to hire a certified public accountant (CPA) who can walk you through the process. A CPA will review your business financials, explain which deductions and credits you can take, account for changes and updates to tax rules, prepare your return for you, and generally ensure you’re not making any costly errors. 

Step 2: Organize your finances

The first step to preparing your tax return is to sort through your finances from the past calendar or fiscal year. Depending on your business’s record-keeping system, you may need to pore over your bank statements and update your Excel spreadsheets, or download the financial reports your accounting software generates. 

Regardless of your methods, make sure you have an updated profit and loss statement and an updated balance sheet, as well as copies of your invoices and receipts for business expenses. 

Step 3: Know which form to file

You’ll file a different tax form depending on your business structure. Here are the forms according to entity type: 

• C corporation: Form 1120
• S corporation: Form 1120-S
• Limited liability company (LLC): Form 1065
• Sole proprietorship: Form 1040
• Partnership: Form 1065

Make sure you read over the form as early as possible, so you have time to gather the necessary information, ask your accountant questions, and fill out every section correctly. 

Step 4: Understand your business tax deductions

Business tax deductions are expenses you can deduct from your total taxable income, essentially reducing the amount of money you owe in taxes. However, to file your taxes correctly, it’s crucial to make sure your deductions are what the IRS calls “both ordinary and necessary” to your operation. You also need receipts and records of your business expenses in case you’re audited. 

Here are some common business expenses you can deduct: 

• Employee wages
• Advertising and marketing costs 
• Legal and professional fees
• Business insurance 
• Phone and IT 
• Travel 
• Supplies 
• Equipment
• Cost of goods sold for inventory
• Rent 
• Home office 
• Vehicle usage and mileage
• Education related to your business (like seminars or conferences)
• Charitable donations 

Step 5: Consider your tax credits 

As a small business, you’re eligible for certain tax credits. Like tax deductions, tax credits lower your total tax payment. However, unlike deductions, tax credits don’t cost you anything—but they do tend to have more complicated rules. Talk to your business accountant to see which credits you might qualify for. Here are just a handful of common business tax credits:

• Employer Credit for Paid Family and Medical Leave
• Credit For Small Employer Health Insurance Premiums 
• Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips
• Work Opportunity Tax Credit

Step 6: File your tax return

Once you’ve gathered your records, filled out your forms, and reviewed everything with your accountant, it’s time to file. You have two main options for filing: 

1. Filing electronically through the IRS
2. Filing through a small business software like TurboTax or H&R Block

Step 7: Set yourself up for success next year

Once you file your return and make your payments, take some time to get organized for next year. It’s a good idea to: 

• Talk with your CPA and ask for their advice about your quarterly payments, deductions, credits, or record-keeping to ensure an even smoother tax season next year. 
• Prepare for your quarterly payments. Create a separate bank account for quarterly estimates and set reminders for making payments on time.  
• Consider upgrading your accounting software or streamlining your bookkeeping system. 
• Create an expense-tracking system to record potential future deductions. 
• Make digital copies of important documents, including this year’s tax return. 

This year’s tax deadline is right around the corner, but you can save yourself stress—and potential complications—by filing early. Start gathering your papers and reach out to your accountant for guidance. 

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