Having your own small business is the American dream; however it comes with a list of new and sometimes complicated responsibilities. Taxes are probably the most dreaded of business responsibilities; however, they don’t have to be so frustrating. Below are some tips on how to keep your files organized and some basic tax information that may be helpful.
RECORDKEEPING
You will want to have a folder or file that maintains copies or originals of: sales and expense invoices, sales and expense receipts, cash register tapes, credit card statements, bank deposit books and check stubs, and your monthly bank statement. You will want to separate these into the following files: Banking (includes bank statements, check stubs, and deposit slips), Accounts Payable (include credit card statements, receipts, and invoices), Accounts Receivable (include copies of checks and invoices). These pieces of information will be used when you file your tax return, and are vital for backing up your tax claims if you are ever audited. This information needs to be retained at least for three years in the office, and retrievable from storage for up to seven years.
FORMS
Keeping current Tax forms on hand is vital. In order to stay up-to-date with the correct forms visit your local Department of Revenue to get forms and updates on a regular basis, or visit the IRS’s website at irs.gov for updated tax tables, forms, and information. Even if you have tax software for income and payroll, I would highly recommend keeping a current table available in hard copy at the office. This way you have it available for questions from employees.
PAYROLL TAXES
In order to keep track of payroll taxes it is important to know your filing status. The number of deposits you need to make per year will depend on the size of your payroll. Smaller firms may only have to make a tax deposit quarterly; however a monthly deposit is the most common. Larger firms that pay weekly or bi-weekly, will need to make tax deposits more often. When you are applying for Tax Id number from the IRS you will be sent payroll information that will clarify when you need to make a deposit. If you have any questions you can always call the IRS or your state’s Department of Revenue for more information.
PAYROLL TAXES – REPORTING
You will be required to file several reports throughout the year that transmit payroll tax and insurance information to the IRS and state department of revenue. (State filing depends on if your state charges an income tax.) When you make a tax deposit you will need to fill out a transmission form 941. This is a simple form that usually will be sent to you with your company information and identification number already printed on it. You only need to insert payroll period, and the amount. A similar form is required for state tax deposits. On a quarterly basis you will fill out a 941 form that summarizes and reconciles payroll taxes accrued during the period and the amount paid. Use this form to correct errors in estimated payments. You will also need to fill out a 940 form for FUTA tax once a year. You will only need to make deposits for this tax if it accrues more than $100 for the month. Otherwise you can just pay the total amount at year-end. Other tax forms for SUTA and unemployment insurance will be sent to you to fill out and return with payment once a year. If you have trouble completing these forms you can call the tax hotline printed in most phonebooks in the Government section or go to irs.gov to download instructions.
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