How to prepare tax returns
Tax returns can be hard for small business owners. There are deadlines to make, and rules to follow. Let’s take a look.
What is tax filing?
Businesses generally have to file three main types of tax return.
- Sales tax: This is a tax that you may have to add to your prices. The government expects you to collect that cash on their behalf and send it their way at set times.
- Income tax: This is calculated as a proportion of your profits.
- Payroll taxes: You’re expected to withhold income tax from your employees’ wages and hand it over to the IRS. There are also employer payroll taxes to pay.
Why does it matter?
Paying too much tax is like giving money away. Paying too little can get you in trouble. Getting it right greatly increases your chance of running a profitable and relatively trouble-free business.
How to file taxes
Filing taxes is the easy part. It can generally be done online, which is a huge step up from the days of paper returns. Preparing those returns is the trickier part.
Sales tax returns
These are often handled by a bookkeeper throughout the year. They’ll keep tabs on what you’ve collected then put together a report for the tax office. Any taxes due are generally paid when the report is filed.
Business income tax
This is calculated on profits. The higher they are, the more tax you pay. But there are ways to legitimately lower your profits in the eyes of the IRS. This is where things get technical, and the stakes are high because your returns will be checked by government tax experts. That’s why most businesses get an accountant to prepare their income tax return.
Payroll taxes
These are calculated and collected from employee pay at every pay run. You’re required to file reports with the IRS (and possibly local tax offices) saying how much you paid your employees and how much tax you withheld. They will tell you when to turn over the money to them.
Modern tax filing
Tax time isn’t the ordeal it used to be. Accounting software can do a lot of the grunt work so filing time is easier for your accountant or bookkeeper. For example, accounting software can estimate taxes owed and quickly produce the reports needed to finalize a tax return. These efficiencies make tax season less stressful and less expensive.
Because accounting software has a record of all the money coming and going from your business, it can quickly run the math to estimate your taxes.
Disclaimer: Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the provided content.
How to do bookkeeping
Bookkeeping includes everything from basic data entry to tax prep. Let’s look at the core jobs and see how they’re done.
- How to do bookkeeping
Small businesses can do their own bookkeeping or outsource to professionals. We look at how to find a good balance.
- Setting up a chart of accounts
Stepping up to do the bookkeeping in a new business? You may have to set up the chart of accounts. Let’s look at how.
- How to do bookkeeping data entry
Data entry is the foundation of bookkeeping. Enter the numbers right and you’ll learn exactly how the business is doing.
- How to do bank reconciliation
Humans aren’t always perfect at punching numbers. Bank reconciliation is a way to do quality control on your books.
- How to manage accounts receivable
Many businesses issue invoices, and those invoices need to be tracked. Learn how to manage accounts receivable.
- How to manage accounts payable
Paying bills isn’t glamorous. But they’re debts and need to be dealt with. Let’s look at how to manage accounts payable.
- Creating monthly financial reports
There are dozens of financial reports that you could create. But there are some monthly mainstays that bookkeepers love.
- How to do payroll
If all you had to do was pay staff, it would be easy. But there’s more to it than that. Let’s look at how to do payroll.
- How to prepare tax returns
Tax returns can be hard for small business owners. There are deadlines to make, and rules to follow. Let’s take a look.
- Using bookkeeping software
Whether you do a lot of your own bookkeeping or outsource it all, software can help you save your time and budget.
- Using professional bookkeeping services
If you don’t have the time or confidence to take on bookkeeping, a professional can help. Let’s look at what they do.
Download the guide on how to do bookkeeping
Learn about the eight core bookkeeping jobs, from data entry to reporting and tax prep. Fill out the form to receive the guide as a PDF.
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