Tax season is a good time to think about tax preparation for the next year. There may have been unforeseen obstacles you encountered with filing this year that you can avoid next time.
Since many of us are working from home due to stay-at-home orders because of the pandemic, our new reality will shift our tax preparation process, so it’s important to start noting changes and differences now, before you go to file.
Now that your 2019 taxes are filed, it’s time to start preparing to file your 2020 taxes in 2021. We’ll take you through the step-by-step process on how to do just that.
- File the right tax return for your business
- Know your tax filing deadline
- Gather your records
- Look for tax deductions
- Deduct your estimated tax payments
- File your taxes
File the Right Tax Return For Your Business
There are different tax returns based on the size and needs of your business. Choosing the right tax form depends on how you operate your small business.
- Sole Proprietorship
- Schedule C
- Schedule C-EZ, Form 1040 (individual income tax return)
- Limited Liability Company (LLC)
- Form 1065 (return of partnership income)
- Form 1040 (individual income tax return)
- Schedule C (a Schedule C is only used if one person owns 100 percent of the LLC business)
- Partnerships
- Form 1065 (return of partnership income)
- Form 1040 (individual income tax return)
- S Corporation
- Form 1120S (income tax return for S corporation)
- Form 1040 (individual income tax return)
- Schedule K-1 (individual owner shares)
Additionally, the IRS requires businesses who made or received payments for certain transactions to file an information return. Information returns are not income tax returns but are a requirement for reporting purposes to assist other taxpayers in preparing their return. Examples include: 1099s, 1098s, 1095s and W-2s.
Know Your Tax Filing Deadline
Although the IRS extended the deadline this year for filing income and information returns, these are dates you need to remember for 2021:
- January 31 is the filing deadline for submitting wage statements and forms for independent contractors with the government.
- February 28 is the deadline for paper filing 1099-MISC forms that don’t have amounts in Box 7
- March 31 is the deadline for filing Forms 1097, 1098, 1099, 3921, 3922, and W-2GS electronically
- March 15 is the deadline for filing business returns for partnerships, multiple LLCs and S Corporations
- April 15 is the deadline for filing business returns for sole proprietorships and single-member LLCs
Gather Your Records
In order to file, you will need the following records:
- Taxpayer identification number (EIN)
- Income statement
- Balance sheet
- Receipts
- Bank statements
- Credit card statements
- Payroll records
- Last year’s tax return
- Estimated tax payments
If you file your tax returns on a fiscal year basis, then you may have almost all of the information you need to file.
If you file your tax returns on a calendar year basis, then start gathering these records now and create a system that you can replicate next January and every year thereafter. By collecting records now, you can save yourself half the work come the next tax season.
Look for Tax Deductions
Depending on your business, you may be eligible to receive certain tax deductions or credits. A common tax deduction you may use for tax year 2020 is using your home for business (working from home).
Other tax deductions include:
- Business use of your car
- Cost of goods sold
- Cost of insurance
Learn more from the IRS.
Deduct Your Estimated Tax Payments
As a business owner, you pay estimated taxes quarterly, so you will need to deduct previous payments from your payment total. That way, you will be less likely to overpay come tax season.
File Your 2020 Taxes
You’re ready to file your 2020 taxes! Be sure to file by the deadline for your business type.
Sign up for a free eFile360 account and prepare to file your 2020 taxes.