Small businesses and new startups are at the heart of every industry. Unfortunately, 20% of small businesses fail in their first year.
There are various reasons why they fail; the most prominent one being the financial obstacles.
However, businesses who take care of their finances since the inception survive the early years in business and establish themselves with time.
One of the important aspects of the financial management of a newly set up business is tax management. Let’s check out some useful tips for filing the first business tax return:
Useful Tips for Filing the First Tax Return of Your Business
Tip#1: Choose the right accounting basis
You can prepare tax returns on two different accounting bases: accrual and cash.
- Accrual basis: income and expenses are recognized when earned and incurred, respectively.
- Cash basis: income and expenses are recognized when collected and paid, respectively.
The accounting basis for tax preparation and financial statements can be different. For instance,
You can make the company’s financial statement using an accrual basis but still, use a cash basis to prepare tax returns.
It’s highly recommended to select one basis and stick with it for consistency.
Tip#2: Don’t ignore automobile expenses
You should also include automobile expenses in your tax returns. It can contribute to a substantial amount for a new startup.
The costs associated with operating a vehicle for business purposes are tax-deductible.
Also, the travel costs incurred due to medical purposes, charitable purposes, moving, and relocation is also deemed as a tax-deductible expense.
You should keep a tab of business mileage separately. You can use the IRS Standard Mileage Rate for Business Driving to calculate the total expense.
Tip#3: Claim home office deduction
You can deduct the costs associated with the area of your home used for business purposes.
However, there are some conditions that you need to meet, like:
- Space must be used exclusively for conducting business.
- Space must be used as a principal place of business.
You can determine the home office expense using two methods: the regular method and the simplified method.
- Regular method: You have to calculate actual expenditures against your overall residence expenses.
- Simplified method: You can deduct a predetermined rate with the square footage of your home’s space.
Tip#4: Take advantage of the first-year deduction
Internal Revenue Service (IRS) first-year deduction allows businesses to claim deductions up to 100,000 as depreciation for capital expenditure if certain conditions are met.
If your business has made substantial profits, you can opt for a first-year deduction to reduce the total tax liability.
But, if your business didn’t make a profit, it’s better to take a slower depreciate route, so the deductions remain available to minimize future tax liabilities.
Tip#5: Hire external tax return services
Filing the first tax return is a complicated and time-consuming task. You require extensive legal and financial knowledge to file taxes and maximize tax savings accurately.
Therefore, we highly recommend hiring an external tax return service provider to take care of filing the first tax return for your business.
Outsourcing the work to a professional will ensure accurate filing and free up your time to focus on core operations of your business.
If you’re looking for a professional BPO to file the first tax return of your business, contact 3Alpha today! We offer specialized tax returns filing services to our clients at competitive rates. Our experts will help you prepare tax return documents within the deadline. For more information, send us an email at email@example.com.