If you’ve just started thinking about your 2023 small business taxes, you’re cutting it pretty close. The tax deadline for sole proprietors and single-member LLCs is April 18, whereas the deadline for partnerships and S-corporations has already passed: March 15. But even though you’re probably wishing you’d taken care of your business taxes earlier, the important thing now is to get back on track, file on time or as soon as possible, and set yourself up in a better position to file next year. Here are some tips to make your last-minute tax filing easier.
1. Take Advantage of Tax Deductions
Even though you’ve waited until the last minute, you don’t want to miss out on all the tax deductions you’re entitled to. Here are some common small business expenses you can deduct from your taxes:
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Rent or mortgage for your storefront or home office
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Car maintenance and gas used for work-related travel
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Professional services, such as an accountant or tax prep service or software
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Payroll
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50% of self-employment tax
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Some local and state taxes
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Charitable contributions
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Education for yourself or your employees related to your business
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2. Hire a Professional
In order to make sure your taxes are done right and not have a stress meltdown trying to do it yourself, it might be a good idea to hire an accountant. While you might be reluctant to spend money on a professional service, a certified public accountant (CPA) can make sure your tax return is error-free, which could spare you fines from the IRS and a potential audit. Also, a good accountant will help you take advantage of every possible tax deduction and credit, and the cost of accounting services itself is tax deductible.
3. Keep Your Business Finances Separate
While it’s probably too late for this tax season, separating your business finances from your personal money can make filing taxes less of a headache in the future. If you have an LLC or corporation, you’re required to keep your business finances separate in order to maintain limited liability. Sole proprietors, on the other hand, aren’t required to keep business finances separate, but doing so can make filing business taxes easier. Managing your business finances in a separate business bank account makes it easier to keep track of profits and tax-deductible business expenses.
Learn how to open a business bank account as a sole proprietor.
4. Don’t Forget About Estimated Quarterly Taxes
First-time business owners may not realize that, in addition to filing an annual tax return, they also need to pay estimated taxes on a quarterly basis. If you expect your business to owe $1,000 or more in taxes per year, you must pay estimated quarterly taxes to avoid a penalty from the IRS. Sole proprietors, LLCs, and S-corps use Form 1040-ES to calculate and pay estimated tax. Depending on where you do business, you might need to pay estimated taxes at the state level as well.
Here’s what to do if you forgot to pay estimated taxes.
5. File for an Extension If Necessary
While S-corps and partnerships have already missed the due date to file for an extension for 2023, sole proprietors and single-member LLCs have until April 18 to file for a six-month extension, using IRS Form 4868. This gives you until October 16, 2023 to file your taxes. It’s important to note that the IRS will only give you an extension to file your taxes, not to pay them. You’re still required to pay what you estimate you owe in taxes when you submit your extension. When you file your tax return, if your estimated tax payment was higher or lower than your actual tax due, you’ll either pay the difference or the IRS will send you a refund.
Even if you think you might be able to scramble together your tax return before the April 18 deadline, consider filing an extension and giving yourself more time to get it right. Having more time will help you avoid errors and maximize every possible deduction to reduce your tax burden.
What if my tax deadline has already passed?
If it’s already past your tax due date, it’s unfortunately too late to file for an extension. You’ll just need to file your taxes as soon as possible. When you don’t file your taxes by the deadline, you begin to accrue interest and penalties, which increase the longer you take to file. The IRS will send you a notice informing you of your tax penalty. The two main types of tax penalty are Failure to File and Failure to Pay.
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Failure to File: The Failure to File Penalty is 5% of your unpaid taxes for each month or part of a month that the tax return is late. If your return is over sixty days late, the minimum penalty is $435 or 100% of the tax due, whichever is less.
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Failure to Pay: The Failure to Pay Penalty is 0.5% of the unpaid taxes for each month or part of a month the tax is unpaid. The penalty maxes out at 25% of your unpaid taxes.
If you didn’t file your tax return and didn’t pay your taxes by the deadline, both the Failure to File and Failure to Pay Penalties will apply, and the total penalty will be 5% (4.5% for Failure to File and 0.5% for Failure to Pay).