Get Your Taxes in Order & Don’t Ask for an Extension
The 2021 calendar year is officially over, which means that tax season is upon us. (Happy New Year, right?) It’s time to start getting organized so you don’t have to ask for an extension on your taxes.
If you’ve been following along recently, you’ll know that there’s a lot you can do to prepare. We’ve told you how to reduce your taxes without reducing your net profits, we’ve shared how to work ahead so you can minimize your tax season stress, and we’ve given you tips to prepare for taxes well in advance.
All that will still help you out, but now the pressure is really on to get all your paperwork together and to your tax preparer. The good news is that you likely have everything you need; you simply need to gather it together.
Have your Profit and Loss for your business(es) ready
You should have your Profit and Loss statement for the 2021 calendar year ready for your tax pro as they will need it to prepare your return. Hopefully, you can easily produce one (hint: we should be reviewing this document at least once a month anyway).
If your books, particularly your P&L, aren’t ready, work aggressively to have them cleaned up and prepared as soon as possible. It is impossible to prepare your tax return or know what your tax liability is without your P&L. If you are profitable, your tax liability could be higher. And you’ll have until April 15 to come up with the funds if you want to avoid a penalty. Filing an extension only gives you more time to file your tax return; it does not extend the amount of time you have to pay your taxes.
Know your tax filing deadlines for your business…
…and make sure you have your tax pro working on them well in advance of the deadlines.
If your business files as a corporation (S or C) or a partnership, you have separate business tax returns that must be filed by March 15. Those tax returns (Form 1120(S)/Form 1065) will produce Forms K-1s, which you need as the owner before you can prepare your personal tax return.
There can be hefty penalties when corporate and partnership returns are filed late. And you can’t file your personal returns without these returns. So be sure to start preparing these returns as early as possible.
If your business files on Schedule C, then you only have the April 15 deadline to deal with. But still, do not delay in having your taxes prepared.
Filing your personal tax return
Form 1040 is the main tax return that most citizens use to report income for the previous year. It includes ALL sources for income—not just your business. However, if you file your business’s taxes on Schedule C, you will attach it to and file it with your personal return (Form 1040).
If your business is taxed as a corporation or partnership, you’ll have a Form K-1 that will “pass-through” that income to your Form 1040.
You will report all income from all sources on the 1040. So, if you have W-2s that report your wages from your job, a 1099-INT for interest received, a 1099-R from retirement distributions, etc., you will report all of those on your 1040. There are also a lot of non-business deductions and credits that could reduce your overall tax liability, like the child tax credit, deduction for student loan interest, and the Earned Income Credit. Then there’s the option to use the standard deduction or itemized deductions.
To get a complete list of everything you need to prepare your personal tax return, you should consult a tax pro. The earlier, the better.
The most important thing you can do for your business this tax season is to have an accurate P&L for the 2021 tax year prepared as early as possible. If this is a problem for you, then you may be a good client for our bookkeeping services.
In regards to your personal tax filing needs, a lot of the important documents will be mailed to you (W-2, 1099s, etc.) but you should still consult a tax pro to make sure you get a complete list of everything you need.