In 2021, amid the ongoing pandemic and “Great Resignation,” Americans filed a record-high 5.4 million applications for new businesses, according to data from the U.S. Census Bureau.
This means that many new business owners are facing their first application season. While many people can file their personal returns on their own, tax experts strongly advise business owners to seek professional help.
“Do not do this on your own,” said Adam Markowitz, a registered agent and vice president of Howard L Markowitz PA, CPA in Leesburg, Florida. “There’s just too much out there.”
Here’s what tax experts say new business owners should know before filing their 2021 tax.
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Understand your structure
One of the first things that new business owners need to know before filing is how their business is structured.
“A lot [the] time, entrepreneurs do not understand the standard taxation of their business, “said Sheneya Wilson, CPA and founder of Fola Financial in New York.
This is important because the structure of your business determines how you file. Most entrepreneurs know if they have a limited liability company or LLC, but do not know if their business is a partnership (meaning more people own the business), if they are a single member, or if they have previously chosen to be an S. company.
“What it really boils down to is that if you’re a single member, you’re filing a Form C; if you’re a multi-member, you’re filing a partnership,” Markowitz said. If you think you are an S company, you should have made a choice on Form 2553 and received confirmation from the IRS, he added.
“If they do not have the confirmation from the IRS, they are not an S company,” he said.
In addition, companies are set up as S-companies, which often have “Inc.” or “Corp.” in their names, submit Form 1120 or Form 1120-S; they can not submit a Form C.
This is important because the way you have structured your business can change your application deadline. While many returns fall due on April 18, returns for companies fall due on March 15.
Find a professional in your niche
If this all sounds confusing, this is it. Most business owners – and especially new ones – should take the time to find a tax professional to guide them through this process.
Still, finding a tax professional can be overwhelming. Wilson recommends that entrepreneurs narrow down their search by looking for someone who has experience in their business area.
“A tax professional who is experienced in your niche will be of better service to you in ensuring that you maximize your tax profile,” she said. This includes helping you deduct expenses correctly and claiming credits that can get your business back.
You may also want to work with someone who has experience in the state where your business is located because sometimes there are local rules, Markowitz said.
If you have not been successful in finding one online, Markowitz recommends checking with your local Chamber of Commerce or local CPAs.
Once you have found a few professionals you are interested in working with, be sure to research them thoroughly. This includes looking at their education and experience – you should resort to people who have either obtained a CPA designation or are so-called registered agents.
It is important that you submit business returns accurately to avoid fines. For example, the penalty for failing to submit a partnership return is $ 210 per share. month for up to one year multiplied by the total number of persons in the partnership for the tax year.
It can quickly run into the thousands of dollars, Markowitz said. If this is the first time you’re making such a mistake, you may be able to get the penalty waived, even if it “is not a slam dunk,” according to Markowitz.
Have your records ready for use
When you find a professional to work with, there are a few things they need to use right away to help prepare your tax.
It includes your Employer Identification Number (EIN), articles of association and operating agreement. You should also come prepared with your company’s financial documents, including your balance sheet and bookkeeping.