Tax Season 2019: File for your Business’s Tax Return

Tax Return

Why is filing taxes important for your organization?

The deadline to file for your corporation’s 2018 tax return is 15th of April 2019!

Filing for tax returns is an extremely crucial part of running a business. As the tax deadline nears, most companies get busy organizing their financial records.

A tax certificate allows businesses to validate their earnings to the income tax department. The payable amount depends on the size and niche of the business. However, failure to complete tax payments in time can lead to heavy fines.

2017 Tax Cut and Jobs Act

In order to ensure compliance, it is important to learn about the government rules and regulations governing taxes. According to the 2017 Tax Cut and Jobs Act, businesses can expect:

  • A cut in the tax rate to 21% for all corporations.
  • A limit on the amount of interest rate larger firms can deduct with a cap at 30% of net adjustable income. However, there are exceptions for small businesses.  
  • Increase in the depreciation amount for first year purchases of business equipment, vehicles, and other large machinery. The law also removes the requirement that the original use of property must commence with the taxpayer, thus allowing bonus depreciation on used property.  
  • A modification in the current rules of net operating losses (NOLs). 31st December 2017 onwards, NOLs will be limited to 80% of taxable income for losses.

Why should you file for a Tax Return?

why should i file a tax return?

After a review of the current tax requirements, let’s go over some of the benefits corporations can gain from filing taxes in time.

  1. Carry forward loss: If a business incurs a loss, it can adjust it under the head of ‘Profits and Gains of Business and Profession’. By filing an income tax return, it is possible to carry forward the loss up to 8 consecutive years.  However, this is only possible if a company has filed its taxes in a timely manner.
  2. Apply for a loan: One of the requirements for loan eligibility is proof of income tax return. Thus, filing for taxes regularly allows corporations to grow business ventures any time in the future.  
  3. Obtain government tenders: An income tax return statement is essentially a verification of the financial position of a business. It helps organizations qualify for the procurement of government tenders.

Additionally, note that you may incur penalties if you slack off in this regard. There are two scenarios in which you may encounter such penalties.

  1. Failure to file: If a company doesn’t file for taxes within the stipulated deadline, it has to pay 5% of the tax that is unpaid for each month of the delay.
  2. Failure to pay: If a firm has filed for taxes but hasn’t paid them, the applicable penalty is 0.5% of unpaid taxes per month.

Step-by-step guide for filing taxes for your business

guide to filing a tax return

The best way to file your taxes? Start early! A headstart will help you avoid that last-minute chaotic hunt for the right documents. It’s also important to note that the process of filing for your federal income taxes may vary depending on the nature of your business.

Each type of entity has to fill out a different form to calculate business income and expenses. Here is a breakdown of the process so you can make a checklist and complete it as you go.

1. Gather all the records

Before you start to fill out any forms, collect all records that depict business earnings and expenses. This process is easier for companies that use software tools that accumulate data. A helpful example is that of asset management software that aids tax filing by enabling companies to track asset value, conduct audits, and calculate depreciation.

By tagging all types of equipment and devices, you can keep your database up to date with accurate information. Simply import the relevant documents when tax season is around the corner.

2. Find the right form

After getting all records in order, determine the correct IRS form for your business type.

  • If you classify your business as a sole proprietorship or a single member LLC, then you have to prepare and file the Schedule C form.
  • If you operate as a corporation or treat your LLC as one, then you must fill out a separate corporate tax return on Form 1120.
  • If you’re an S corporation, use Form 1120-S.
  • If your business is a partnership or a multiple member LLC, you will need to choose the partnership return (Form 1065) and schedule K-1 for each partner or LLC member.  

3. Fill out the form

The relevant tax return forms for every type of organization are easily available on the IRS website. Schedule C is the simplest way to file for business taxes as it’s a concise form that still allows you to list all the expenses you can claim.

Once you’ve listed the expenses, you just have to subtract these from your net earnings to arrive at the profit or loss. Then, transfer this figure to the personal income tax form and include it with all other tax items.

On the other hand, Form 1120 follows the same pattern, but is a little more complex. It covers expenses in much more detail and hence is not applicable to small businesses. Also note that Form 1120 is separate from the personal income tax form.   

4. Keep track of deadlines

Effective time management enables corporations to meet deadlines easily. The key to successful tax filing is to keep your records in order so tax season is never a bump in your workflows. The following due dates apply for corporate and partnership taxes (effective 2019):

  1. Generally, corporate taxes are due after four and a half months of the corporation’s fiscal year. When you use Schedule C, it becomes part of Form 1040 and follows the same deadline which is April 15th.  
  2. Alternatively, if you are taxed as a C corporation, then the applicable form is 1120, due on the 15th of April. Or if your organization is classified as an S corporation, then you need to fill out Form 1120S which must be filed by the 15th day of the third month following the close of the tax year which for majority of firms is 15th March.  

Additionally, you can refer to this comprehensive tax filing timeline by The Balance!

Tax season is upon us – file for your return!

Filing for tax returns in time allows organizations to avoid penalties and apply for loans and government tenders. But most importantly, an income tax return form validates the financial standing of a corporation. Such reports come in extremely handy for the business itself and can be used as a baseline for decision making.

For this reason, it is recommended to deploy a reliable and secure tracking system to record all business activities in an efficient manner. Accurate statistics lead to a correct estimation of payable taxes. Once this is done, decide the means to file for tax returns. The best way to file for taxes is through online e-filing, either with the help of a tax preparer or by deploying tax preparation software.

Lastly, if you’re unable to file taxes within the due date, you can file for an extension at the cost of interest or other penalties. Other options include paying taxes on an installation plan or through credit/debit card with an extra fee.

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