Can I file my own business taxes by myself?

Businesses and self-employed taxpayers have many options for filing their taxes.

Filing taxes doesn’t have to be time-consuming. The IRS wants it to be as easy as possible for taxpayers so that they can pay their taxes on time. For business owners and self-employed individuals, e-filing (otherwise known as electronic filing) makes the task simple and efficient.

e-File Options

The various e-file options are on the IRS site. First, you must know under what business entity you will file. Are you filing as a partnership, LLC, S-corporation or another business entity? Each type calls for its own forms.

The IRS e-file forms can all be filled out online. To make the process easier:

  • Gather all the necessary materials to e-file before you sit down at the computer. This includes your corporate EIN or taxpayer EIN, income statements and other financial information.
  • Make sure you have a secure Internet connection.
  • Create your accounts and security questions, if necessary.
  • Complete the forms.
  • Check them for accuracy.
  • Print a copy for your records.
  • If you feel the forms are complete, submit them online.

You will need to create an e-file account. These accounts are free and secure. The first time you use the IRS site, it will take an additional 10-15 minutes to set up your account. It’s a good idea to create a folder on your computer and for your paper-based records to store all of your e-file document copies and other pertinent information. Many companies only use this information quarterly, and it’s easy to forget it after a while, but having a file makes it simpler to remember account numbers and other identifying information.

It’s Free

There is no cost to file your tax information or Social Security or Medicare payments electronically. If you encounter a website that wants to charge you to complete this information, leave immediately. It’s either a phishing scam or an unnecessary expense!

What business start up costs are deductible?

Launching a new business takes hard work — and money. Costs for market surveys, travel to line up potential distributors and suppliers, advertising, hiring employees, training, and other expenses incurred before a business is officially launched can add up to a substantial amount.

The tax law places certain limitations on tax deductions for start-up expenses.

  • No deduction is available until the business becomes active.
  • Up to $5,000 of accumulated start-up expenses may be deducted in the tax year in which the active business begins. This $5,000 limit is reduced (but not below zero) by the excess of total start-up costs over $50,000.
  • Any remaining start-up expenses may be deducted ratably over the 180-month period beginning with the month in which the active business begins.

Example: Brooke spent $20,000 on start-up costs before her new business began on July 1, 2019. In 2019, she may deduct $5,000 and the portion of the remaining $15,000 allocable to July through December of 2019 ($15,000/180 × 6 = $500), a total of $5,500. The remaining $14,500 may be deducted ratably over the remaining 174 months.

Instead of deducting start-up costs, a business may elect to capitalize them (treat them as an asset on the balance sheet). Deductions for “organization expenses” — such as legal and accounting fees for services related to forming a corporation or partnership — are subject to similar rules.

Do you drive your car for business purposes?

Do you drive your car for business purposes? The costs of operating and maintaining your vehicle are potentially deductible. Here are some guidelines.

Two Methods

The IRS provides two basic methods for computing deductions for the business use of an automobile.

Actual expense method. With the actual expense method, you deduct the actual costs of operation, including licenses, registration fees, garage rent, repairs, gas, oil, tolls, and insurance. Additionally, you may claim depreciation deductions (and/or elect expensing under Section 179). If the car is leased, you deduct your lease payments rather than depreciation. (Certain limits apply.)

Standard mileage rate. Alternatively, you may choose to use an IRS-provided standard mileage rate. With this method, you multiply the number of business miles you drive during the year by the applicable rate (58¢ per mile for 2019). When you use the standard mileage rate, you don’t separately deduct expenses such as gasoline, oil, insurance, repairs and maintenance, depreciation, or lease payments. However, business-related parking fees and tolls are separately deductible.

Which Should You Use?

Generally, you will want to use the method that produces the largest deduction. If your vehicle is costly to own and operate, the actual expense method may be more advantageous. Conversely, if your vehicle is fuel efficient and/or inexpensive, the simpler standard mileage rate method may be a better choice.

With either method, the IRS requires that you keep records that substantiate your business use of the car: the date, place, business purpose, and number of miles you travel. When you use the actual expense method, you’ll also need records substantiating the amount and date of car-related expenditures. You can avoid having to retain receipts by using the standard mileage rate.

If you decide to use the standard mileage rate for a car you own, you may switch to the actual expense method in a later year. However, you won’t be able to claim accelerated depreciation deductions for the car. With a leased car, you have less flexibility. If you choose the standard mileage rate the first year, you must use it for the entire lease period.

Personal and Business Use

If you use your car for both personal and business purposes, you must keep track of your mileage for each purpose. To figure the percentage of qualified business use, you divide the business mileage by the total mileage driven. Then multiply that percentage by your total expenses.

Do You Need a Business License?

Did you know that there are many types of businesses that are strictly regulated and controlled by the government?

My mom once had a great idea to start a cooking business out of her home. Needless to say, that didn’t last long when the city inspector heard about it.  It would have been too costly for her to go through the process of obtaining all the crazy permits she need to operate that business.

If you think you’ve got an idea that’s going to make you big money, there might be a reason why everyone else isn’t doing it and that reason could be related to the local or federal laws that regulate that particular industry.

As I mentioned above if you are going to sell food, you will need to obtain a license and register for hygiene and safety inspections. For many reasons most local government agencies are especially strict if you plan to handle food, especially raw meat.  Food licenses aren’t too hard to get provided you are willing to have your kitchen and products inspected at regular intervals.

An in-home daycare will need a license. There are all sorts of courses to take and regular inspections to go through. If you ever wonder why there’s a shortage of in-home childcare providers, it’s because it’s so hard to keep up with the rules and make a profit.  I remember when my two oldest daughters were under the age of five, I was on several waiting lists for the daycares in my city.  There was definitely a shortage and it was hard to get a spot in the good ones.

Gambling is always strictly regulated.  It might be fine to gamble privately with your friends depending on where you live, but as soon as you start running it as a business you are on shaky ground. Most cities have ordinances that determine gambling as an illegal activity. Applying for a license to operate a gambling establishment is pretty difficult to obtain.

You will need a license if you plan to serve alcohol. Getting an alcohol license for your business, unless it’s for some kind of special event and the drinking is just incidental, is not easy to get. It also depends on where you are located. Some city ordinances do not allow the sale of alcohol at all.  Alcohol licenses are subject to appeals from people who live near your business.

Any professional service will probably need a license. When I say professional, I mean doctors, dentists, accountants, lawyer, and veterinarians to name a few.

If you are running your small business out of your home, you need to check on any restrictions that might be in place for your neighborhood. Some cities also require you to register with them due to a potential of increased foot traffic in your neighborhood if you are running your business in your home.

This list just covers some of the most common businesses that need licensing. The best idea is to check your local laws and make sure your small business is properly licensed.

WARNING: A word of caution here. If you are searching online to determine if your business needs a license to operate, there are many companies that offer the service of registering your business for you for a fee. There is nothing wrong with this, but it is not that hard for you to do it yourself. All you need to really do is contact your local County Clerk’s office and ask them. They will lead you in the right direction. I’m just trying to save you some money here.

What is Business Capital?

Business definition for the week: “CAPITAL”

Capital = This is money that is going to be invested in a business.

For example: “I am starting my business with $5,000 capital”

This is your PERSONAL money that you have invested into your small business. When you first opened a business checking account you probably didn’t have any income for that opening balance the bank required, did you? So you had to pull money out of your personal funds, to open up that business account, right?

This investment is called “Capital”. It is NOT an expense that can be deducted on your tax return. Many people make this mistake and write it off as “start-up costs”, but that is incorrect.

Make sure your bookkeeper or accountant (which might be yourself) knows that this money came from you personally and doesn’t count it as INCOME (which IS taxable) or as an expense.