How to Prepare For Tax Day- A Step By Step Guide

• Reading Time: 5 Minutes
• Published: July 27, 2021
• Last Updated: January 15, 2025

`Whether you own a big company or a small business, you will want to plan ahead of time for Tax Day. To ensure that taxes are paid accurately and on time, collecting and analyzing the information from all across the business is necessary.

This is why we have created a checklist for business tax planning. A tax preparation checklist will help you prepare and find the documentation and details you will need to compile your tax return. The checklist also includes information about your earnings, changes to income, tax deductions, and other information required by the IRS, in addition to your personal information.

The Ultimate Guide For Tax Day Preparation

Many people are intimidated by taxes, whether they are filing it for the first time or regularly. But they don’t have to be complicated if you break them down step by step. Here are the most important things to include on your tax preparation to-do list.

1. Classify your business structure

Your business structure determines the type of income tax return form you file with the IRS. If you have been in business for a while, you are probably already aware of your classification. There are two types of business structures owners can file under:

•  C Corporation:

A C Corporation (C Corp) is a legal entity that operates independently of its shareholders and owners. It has its own “legal person,” and its taxes are paid separately by its owners. Shareholders own sections of the C corporation and elect a board of directors to make business decisions. A significant advantage for shareholders is that, unlike most corporate companies, they have minimal liability for the company.

• Pass-through Entities:

Pass-through entities comprise a variety of business structures, including:

• Sole proprietorships
• Limited Liability Companies (LLCs)
• Partnerships
• S Corporations

The revenue from the company is added to the owners’ personal income on their tax returns, which makes these business structures different from C corporations. Each of these business structures has its own set of liability and state laws.

2. Recognize the tax filing forms

It will be difficult to file your taxes correctly unless you have the correct form or forms. This is one of the first and foremost things any business owner should do to figure out what tax documents they will need.

• If you are a sole proprietor, Add a Schedule C Form or a 1099-MISC
• Use Form 1120 for C-corporation.
• Use Form 1120S if your business is an S-corporation.
• If you’re a partner in a company, file Form 1065

Keep in mind that the tax liability can vary significantly depending on the type of business entity you have. Your accounting outsourcing service provider or tax preparer can clarify how your business type affects your tax liability.

3. Organize your financial records

Keeping your records organized throughout the year ensures that everything is in order when tax deadlines arrive. Your income and expenditures are essential things to keep track of. Many companies use finance software and tax programs to keep track of profits and transactions in a centralized system.

To prove that you paid the expenditures, you report, keep all supporting documents like bills, invoices, sales receipts, and deposit slips sorted by year and type of income or expenditure. Gross receipts, expenditures, employment taxes and assets are categories to break down transaction records into. Costs for travel, lodging expenses, entertainment, and gifts should be kept separate from other expenses.

4. Keep track of your expenses paid through your business account

Keep track of all personal expenses paid for from your business account. In many situations, you might use your company credit card rather than your personal credit card for your personal expenses, just like you might use your personal credit card to buy items for your business. These expenses must be correctly reported in the accounting system to avoid being mistakenly deducted as company expenses.

While it is ideal for reimbursing the company for these costs, it’s much more effective to record the transactions as a credit to your checking or credit card account and a debit to either a loan to a business or equity account.

5. Record any change in the ownership

Your tax preparer needs to be informed if a partner leaves the business or if you sell stock options to your employees. Changes in ownership affect your company’s equity, so you will need to alert your tax preparer about that. This is a crucial point to remember when preparing your taxes as a business.

Since the change of ownership may have complicated tax implications. Therefore, before making any changes like this in your business, check with your tax preparer to make sure you make the right decision.

6. Consult your tax accountant

Tax experts can clarify how to file business taxes, what the legal obligations are, and what changes are there in the IRS guidelines. It’s important to consult with a tax advisor to ensure that you’re making timely payments and meeting your legal responsibilities.

Sure, experts charge for their accounting services, but their knowledge will save you time, money, and future penalties if you don’t do your taxes at the right time. Tax professionals will inform you about all of the tax credits and deductions applicable to your business.

7. Ask for a tax-filing extension if you need it

If you think you will miss the deadline to file your taxes, don’t be afraid to ask the IRS for a filing extension. You can e-file for an automatic tax-filing extension. It’s essential to note that companies can request a return extension but not a payment extension. Taxes must also be paid on the due dates. Each year, your company is only granted one extension.

The framework of your company determines the paperwork you send to request an extension. The extension application must be sent by the tax return’s due date, not a day later. Extensions are usually for 6 months.

Conclusion

Tax day will be much smoother for both you and your tax preparer if you know what’s coming and take the time to prepare using the business tax planning checklist. Company owners, self-employed people, and corporate executives all need to prepare ahead and ensure that their taxes are paid correctly. They must also provide their workers with the appropriate paperwork to ensure that their payroll system is tax compliant. If you are looking for a tax professional who can make the whole process easier for you, Whiz Consulting will help you. For more information on what we have to offer, contact us through our website.

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