With tax season just around the corner, a lot of business owners are beginning to panic. With so many unknowns that happened in the last year, there are still too many unknowns for small businesses. Will business owners be expected to pay certain taxes even when they weren’t open? How does a business handle the tax bill for a PPP loan?
While it’s difficult to know exactly what is happening with taxes, there are a few things you can do to be best prepared.
Discuss Your Current Business Issues with Your Attorney
While an attorney won’t be able to comment too much on taxes and general accounting best practices, they will be able to advise you on the various business entities you can file as. For example, if you went from a sole proprietorship in the last year to an LLC or you’re considering migrating to an LLC, know that there are many tax benefits involved. Depending on your type of business and its size, you may wish to file as an LLC, a joint LLC, an S-Corp, C-Corp or continue on as a sole proprietorship if that makes the most sense for you.
Ask your attorney what is best and if you don’t have a business attorney already, we recommend the lawyers at Scheid Cleveland. Although they are based out of Denver, they are licensed in California and help out a lot of small businesses in Sacramento.
File An Extension
If you already know you are going to have a large tax bill for the last year, you may consider filing an extension with the IRS. Like personal taxes, businesses are able to file for an extension to get their ducks in a row and be prepared financially for a massive tax bill.
It’s also important to understand that the Internal Revenue Service’s employees also just experienced the pandemic like everyone else. They are expecting to have a lot of extensions on their hands and you definitely won’t be the only business in need of a little more time.
Have All of Your Books Ready
One of the most confusing and time consuming pieces of the tax puzzle is having all of your sales and expenditures in order. If you’re a small business owner in Sacramento, you know it’s important to have all of your books organized. In fact, Melissa Broughton of Busy Bee Advisors, tells us “unorganized books are the number one reason why businesses struggle with taxes. They operate all year long without keeping things organized, then it when it comes time to file taxes, things are a mess. It’s great for our business as we’ll help them organize all of their bookkeeping, but it’s the absolute number one problem for small business owners trying to understand taxes.”
Whether you handle your books yourself, have an administrative assistant or hire a group like Busy Bee Advisors, you must keep your business’s finances organized.
Getting a Loan for Taxes
As a small business owner, you do have the option to take out a small business loan to help assist with your taxes. If you know you are going to have an unmanageable amount to pay with or without an extension from the IRS, it’s in your best interest to take out a loan from a private financial institution.
Again, you’re not going to be the only Sacramento business owner who will have questions about taxes for 2020. We all experienced a crazy, hectic year and we’re lucky to be here. Consult with your business attorney or accountant / CPA if you have any additional questions specific to your business.