Small business tax time doesn't have to feel overwhelming and stressful if you know what to expect and do a little prep in advance.
To ready yourself for your 2024 tax year filing, start by preparing for the big day, finding out what's new for tax year 2024, and following these foundational strategies.
First, the Tax Logistics
Tax day procedures can look very different depending on your type of business. The first step is knowing which tax forms you'll need in order to file your business taxes.
If you're a sole proprietor, for example, you will file your business taxes as part of your personal taxes. That means you will have to complete a Schedule C along with Form 1040.
S corporations and partnerships will use Form 1120-S and a Schedule K1.
Different business types also have different filing deadlines as well. It's important to follow these deadlines since missing one could result in paying interest and penalties.
- For sole proprietorship, C-corp, single LLCs: File or request an extension by April 15; file with an extension by October 15.
- For partnerships, S-corps, multi-member LLCs, etc.: File or request an extension by March 17; file with an extension by September 15.
Lastly, you'll need to make a key decision: Will you file your own taxes, or will you hire a tax preparer? Depending on how complex your business is, it might be a good idea to enlist the help of a tax accounting professional. They will be knowledgeable about any tax changes and credits for which you may be eligible, as well as any relevant state tax laws.
Whether or not you are going to seek help, there is still a good amount of work you'll need to do to get your tax documents in order.
Start Gathering Your Business Income Records
Regardless if you're filing yourself or enlisting the help of an accountant, you need to have your business financials available for reference. Among the files you need include accounting journals, ledgers, balance sheets, income statement, bank statements, etc.
You'll also need to file with your Social Security number or EIN (Employer Identification Number), so be sure to have that handy.
Prep Documentation for Business Expenses
Small businesses (SMBs) can deduct a number of expenses, including operational costs, supplies, insurance, and professional services (marketing, advertising, attorneys, accountants, etc.).
If you use a home office, you may also be able to deduct part of the cost of running your home. Other potential expenses could be for mileage, transportation, meals, entertainment, health insurance, professional development, etc.
You'll need to have a paper or digital backup for every expense you claim, whether it's a collection of receipts, paid invoices, credit card statements, or other proof. For home office deductions, you'll need to know how much you paid in property taxes, insurance and utilities, as well as the square footage of your home office and entire house.
If you paid estimated quarterly taxes for the year, you or your accountant will need proof of those payments as well.
Lastly, make sure you've sent the necessary forms to your employees (W-2) and contractors you hired (1099-NEC) by the required dates, and have your payroll records ready to access.
Tip: If you're not already tracking your expenses as you go, establishing a way to do that will help you, moving forward.
Brush Up on Your Tax Credits
Tax credits can help small businesses offset some of their tax liability. Most of them incentivize SMBs to invest in something that benefits their employees or their community. Here are some examples of tax credits you may be eligible for:
- The Credit for Small Employer Pension Plan Startup Costs is for SMBs with 50 employees or less that started up a retirement plan during this tax year. The tax credit is 100% of the cost (up to $5,000), as well as up to $1,000 in contributions you made per employee.
- Other potential credits include Disabled Access Credit (if you made accessibility improvements), Work Opportunity Credit (for hiring targeted groups like veterans or formerly incarcerated individuals), Paid Family and Medical Leave Credit, etc.
- Check out some of the other small business tax breaks listed by the IRS.
Don't Forget State and City Tax Obligations
State tax laws vary. For example, some may have their own credits and rebates for small businesses on top of what the federal government offers.
Research your state's department of finance or speak with a tax professional who can guide you.
What's New for Tax Year 2024?
Though there are no major changes this year, there are still a couple of items that may impact small businesses.
- Pass-through business owners can still claim up to a 20% tax deduction on their share of the business's income, but the threshold has increased to $191,950 (individual) or $383,900 (joint).
- For 2024, if you're claiming mileage expenses, the cost of each mile of business use from January 1, 2024, to December 31, 2024, is 67 cents per mile.
- Businesses and tax-exempt organizations that buy a qualified commercial clean vehicle may qualify for a clean vehicle tax credit of up to $40,000.
Tip: Try to keep personal and business dealings separate. As part of a phased rollout (delayed over the past two years), you'll receive a 1099-K for any untaxed income above $5,000 you received in 2024 via a third-party app like Venmo or PayPal. This threshold has decreased from $20,000, and eventually, it will drop to $600, though the IRS has not announced when. All your income remains taxable, as it has always been, but since the 1099-K amount may include personal transactions or gifts, you'll need to separate and tally which portion is taxable.
Get a Head Start on 2025
Taxes recordkeeping is so important, so if you're struggling to get your taxes done this year, it's a good reminder to put practices in place ASAP to simplify things next year. You might consider choosing a more intuitive business accounting software, outsourcing some of your bookkeeping, or simply committing to better organization.
Additionally, stay alert for news on changing tax rules, adjustments to dollar limits on existing rules, and other IRS announcements that could impact you.
Looking for additional guidance? Connect with a First Horizon banker to learn more.
