Every week as SmallBizLady, I conduct interviews with experts on my Twitter talk show #SmallBizChat. The show takes place every Wed. on Twitter from 8-9pm ET. This is excerpted from my recent interview with @lauricehewitt. Laurice Hewitt is the owner of Hewitt Business Consultants. She is a small business bookkeeper and tax preparer. The goal of Hewitt Business Consultants is to answer common business bookkeeping and tax questions, solve the problems that hold small business back financially. Hewitt Business Consultants provide consulting, bookkeeping, tax preparation and financial education workshops. For more information http://www.hewittbusinessconsultants.com
Smallbizlady: What taxes do small business owners pay?
Laurice Hewitt: The tax a small business owner pays depends on the business entity or IRS classification of the business. Typically quarterly sales taxes, federal and state income taxes and if there’s any employees other than 1099 contractors, there’s also payroll taxes.
Smallbizlady: When are federal business taxes due?
Laurice Hewitt: Business Income Taxes are due March 15th. Individual income taxes are due April 15th. This would again depend on the business entity.
SmallBizlady: Is there any strategic advantage to applying for an extension on business taxes?
Laurice Hewitt: That would depend on the circumstances of the business. It is always good to file within the deadline as opposed to filing an extension. If the taxpayer (small business) does not pay their taxes by the due date, they should do the following. The taxpayer should estimate their tax liability and send any balance due the appropriate extension form. If you make this payment and cover at least 90% of your real liability, you win. You will not owe a late filing or late payment penalty.
Smallbizlady: What should a business owner expect to pay to have their taxes prepared?
Laurice Hewitt: Charges for preparing quarterly and year-end business taxes vary depending on the complexity, the size of the firm and the kind of business. Fees for preparing monthly, quarterly and annual payroll tax forms are usually included as part of a payroll service. Income taxes for a sole proprietorship with no employees are filed as part of the owner’s personal income taxes.
Generally, a simple income tax return for an LLC partnership, S-Corp with few or no employees starts around $500 and goes up to $2,500 or more depending on circumstances.
Smallbizlady: Should business owners do their own taxes? Why or Why not?
Laurice Hewitt: As a tax professional, I would say no. I would not suggest a business owner to complete their own taxes. Annually tax some tax rules change, and you pay experts to stay on top of the changes in federal tax policy. Your tax professional will be knowledgeable of the new rules and their implications. The alternative is to purchase software from your local office supply store. The software should be specific to the business entity. Example: If your business is a S-Corp., then software specific to S-Corps should be purchased and used. I would not suggest using the software, because, as a business owner you may not quite understand the questions being asked or the implications of the answers chosen for each question required by the software.
Smallbizlady: How should non-incorporated solopreneurs prepare their tax returns?
Laurice Hewitt: A non-incorporated soloprenuer should use IRS Form 1040. Their tax return should be prepared, completed and submitted to the IRS by April 15th.
Smallbizlady: If I am a S-Corp, how should may taxes be prepared?
Laurice Hewitt: S-Corp business owners should have their taxes prepared using IRS Form 1120s for the business and K-1 for personal income.
Smallbizlady: If my business is an LLC how should my taxes be prepared?
Laurice Hewitt: Business owners incorporated as an LLC should have their taxes prepared using IRS Form 1040 and a Schedule C.
Smallbizlady: Why is it so important to clarify a Personal vs. a Business Expense?
Laurice Hewitt: Small business expenses are the cost of carrying on a trade or business. These expenses are usually deductible if the business is operated to make a profit. Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal use, divide the total cost between the business and personal parts. You can deduct the business part. For example, if you borrow money and use 70% of it for business and the other 30% for a family vacation, you can deduct 70% of the interest as a business expense. The remaining 30% is personal interest and is not deductible.
Smallbizlady: When can I claim my home office as a deduction?
Laurice Hewitt: If you use part of your home for business, you may be able to deduct expenses for the business use of your home. You need to figure out the percentage of your home is devoted to your business activities. Generally, deductions for a home office are based on the percentage of your home devoted to business use. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. The home office deduction is available for homeowners and renters, and applies to all types of homes, from apartments to mobile homes. There are two basic requirements for your home to qualify as a deduction:
Regular and Exclusive Use. You must regularly use part of your home exclusively for conducting business. For example, if you use an extra bedroom to run your online business, you can take a home office deduction for the extra bedroom.
Principal Place of Your Business. You must show that you use your home as your principal place of business. If you conduct, business at a location outside of your home, but also uses your home substantially and regularly to conduct business, you may qualify for a home office deduction. You can also deduct expenses for a separate freestanding structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your business. The structure does not have to be your principal place of business or the only place where you meet patients, clients, or customers.
Smallbizlady: When should a small business owner issue a 1099 form for a vendor or contractor?
Laurice Hewitt: A Form 1099-MISC must be issued when you make payments of $600 or more during one calendar year. A 1099-MISC forms are issued when you pay someone services, royalties or other various fees who is not an employee. The forms must be mailed to all parties no later than Jan 31st. This does not include rents paid to real estate brokers. A 1099-MISC must also be issued for payments of $600 or more for prizes and/or giveaways with value over $600 such as prizes for winning a contest on television or radio.
Smallbizlady: I am married, and my spouse holds no ownership in the business should I file my tax return(s) jointly or separately?
Laurice Hewitt: The small business taxes should be file separately. Taxes are due soon. Will you be filing an extension this year? Tell me why?
If you found this interview helpful, join us on Wednesdays 8-9pm ET follow @SmallBizChat on Twitter.
Melinda Emerson, known to many as “SmallBizLady,” is a Veteran Entrepreneur, Small Business Coach and Social Media Strategist who hosts #Smallbizchat weekly on Twitter for emerging entrepreneurs. Her first book Become Your Own Boss in 12 Months is out in March 2010.
Great tips for small business owners.
May I clarify that you’ll only use Schedule C if you are the sole owner of the LLC. If you have partners for your LLC and treats it as a partnership (for tax purpose) – form 1065 needs to be filed as an informational return and schedule K-1 is used for your portion of the income. If the LLC is treated as a s-corporation (less common), form 1120S and K-1 are used.
LLC tends to be one of the trickier entity due to its hybrid form and that it is governed at a state level. IRS simply treats it like however you choose it to be (disregarded entity, partnership, corp or s-corp.)
Michael–
Thank so much for your comment and the clarification. Your information is very helpful. Taxes can be so tricky for small business owners.
I hope you are getting some rest this tax season.
Melinda
@smallbizlady
Melinda,
Busy as always but not for the reason some may think – luck for me, I don’t file any returns for my business – strictly outsourced accounting for management purposes. 🙂 I’m looking forward to more great interviews from you.
Best,
Michael
Nice job!
Martin–
Thank you for your comment.
Melinda
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Hi Melinda,
I recently purchased my first small business, am new to the business/employee tax world. Have quickly realized the overwhelming feeling of being taxed to death. There are so many and all are confusing, the amounts are more than the rent itself.
How is a business owner able to question these taxes, where that money is actually going and why and if its a legitimate tax?
Lastly, what software accounting program do you recommend? I’m in the beginning stages of learning Quickbooks, but like the layout of Wave Accounting better. Unfortunately Wave does not support the bank I go through. Would prefer a software that actually links to my bank account and in actual time.
Any suggestions would be greatly appreciated.
Thank you