If you missed my live chat with Keila of Little Fish Accounting in The Legal Paige Facebook Community you MISSED OUT because this discussion was packed with such good information for small business owners (don’t worry if you join the group here and watch the replay!).
I know that as business owners something we stress the most out about is taxes. When do we file them? How do we file them? What if I have independent contractors? The list goes on and on. Because this is such a huge topic (and I am NOT a tax expert) I decided to chat with Keila allll about the world of small business tax and accounting.
Here’s a recap of the Q&A conversation we had:
1. What is the official day that 2021 tax returns are due?
Tax returns for individuals and corporations are due on April 15th, 2021. If your business is filed as a partnership or an S-corporation then your taxes will be due on March 15th, 2021.
It’s super important to pay attention to how your business is formed and what your deadlines and responsibilities are in filing your taxes based on that formation. Keep in mind that if you file an extension for your tax return that will give you an additional six months from your original filing deadline. HOWEVER, this does not mean you necessarily escape any penalties or files for filing beyond your original deadline.
2. What is a 1099 Miscellaneous Form?
If you are a business owner and you have people working for you then you need to know what a 1099-MSIC form is. This form is paperwork you MUST give to all those working for your business who are not considered employees. You will also want to have a W9 form for all those working for you who are not employees AND who you have paid over $600.
This is super important for recording purposes and to keep you in good graces with the Internal Revenue Service (IRS).
3. Is it better to pay my taxes annually or quarterly?
This is a tricky question and honestly something that is going to be dependent on your business and your income for that year. If you expect to pay more than $1000 in taxes in 2021, then you will HAVE to pay quarterly taxes. If you have an accountant this is an important question to ask and to make sure you know the answer because you can be subject to fines from the IRS for paying incorrectly.
I generally say that business owners should expect to put aside around 30% of profit to pay for taxes in the upcoming season. Make sure to have this in a business bank account.
4. Do I need an EIN to file my taxes? Or can I file with my social security number?
This will entirely depend on what type of business you own and how your business is formed. If you are a sole proprietor then your SSN will be totally fine to file with, in fac the IRS will most likely not accept an EIN in this case. This is similar to if your business is an LLC with one member. If this is the case then the IRS will treat your business essentially AS a sole proprietor and will use your SSN anyway.
Despite this I still HIGHLY suggest getting an EIN for your business, since not only does it act as your businesses social security number, you’ll also more than likely need an EIN for other business practices (such as getting a business bank account). It’s free and easy to do online here at the IRS website.
5. Do I need to keep physical receipts?
The bottom line here is no, you do not have to keep physical receipts. What receipts are mainly for is to show the IRS that you made the expense (and that you have proof of it). However, in today’s day and age you don’t need receipts because you have credit card statements, bank statements, emails from companies, etc that you can show the IRS instead of a physical receipt.
A key tip here if you keep a physical copy of something keep a copy of it in a digital storage device, such as Cloud storage, so that you have a backup copy!
6. Should you have a business bank account?
YES. You should absolutely have a business bank account! Not only will this help keep your business expenses separate from your personal ones (and serve as a record for the IRS), it will also help you track your expenses!
Ultimately when it comes to the IRS it’s all about organization, you need to prove what your expenses were for and the easiest way to do that is by having a SEPARATE account for those expenses.
7. How do you pay yourself?
This is going to depend on your business but I do a tip for how you can do it. Transfer a set amount every two weeks to myself. Get yourself on a timeline of how often you pay yourself (a set standard amount). This allows you to budget because you know how much you’re making. It also allows you to better lay out your pricing and your expenses!
THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. EVERY SITUATION IS DIFFERENT & IS FACT-SPECIFIC. A proper legal analysis is necessary based on your location and contract. Consult an attorney in your home state for advice regarding your contract or specific legal situation.