Small business owners reeling from the coronavirus crisis will get a break from the IRS this year in the form of a federal income tax filing extension.
In most years, tax day is on April 15 or within a few days. Because that date falls in the midst of the coronavirus crisis in America, the IRS has extended the filing deadline by three months to July 15, 2020. Individual federal income tax filings will also benefit from the extension.
Businesses owners who cannot file their taxes in time for the extended deadline can apply for an additional extensionfil through a form 7004.
IRS officials are still urging everyone to file as soon as possible if it is within their means.
“Even with the filing deadline extended, we urge taxpayers who are owed refunds to file as soon as possible and file electronically,” said Chuck Rettig, IRS Commissioner, in a news release. “Filing electronically with direct deposit is the quickest way to get refunds. Although we are curtailing some operations during this period, the IRS is continuing with mission-critical operations to support the nation, and that includes accepting tax returns and sending refunds.”
Most tax refunds will be delivered within 21 days, according to the IRS.
The deadline for filing for state taxes
It’s important to consider that the federal tax extension is only a partial answer to the question: “When are taxes due?” The deferral only applies to federal taxes and not state taxes.
Each state calculates its tax rates a bit differently. Generally, if your business is incorporated, you pay corporate income tax.
If you are a sole proprietorship or limited liability company (LLC), you pay personal income tax.
Each state has unique guidelines for tax day in 2020. Visit your state’s tax agency website to see if filing dates were adjusted in response to the coronavirus crisis.
You may have more time than usual to file your taxes.
When to pay taxes
Most self-employed and independent contractors won’t wait until tax day to file their 2019 taxes.
Typically, these individuals estimate the tax they will owe and pay it quarterly to avoid a high tax bill with annual filings. Since there is no self-employed tax withholding, those in business for themselves often pay nearly 30% of revenue to the IRS.
Businesses can fill out Form 1040-ES to make quarterly payments. That helps you to make the calculation for what you owe for income tax, social security, and medicare.
Self-employed and business deductions
There are several deductions self-employed workers and independent contractors can claim. Generally, you can deduct ordinary and necessary expenses to run your business. Here are a few examples of small business tax deductions:
Transportation. If you own or rent a business vehicle, you can claim those costs. You may also claim the expenses related to the business use of your personal vehicle.
Utilities. Your overhead costs, including commercial rent, electricity, and telecommunications may qualify as business expenses.
Insurance. If you buy business insurance, you can claim that cost as a deduction. The insurance tax deduction applies as long as the coverage is for your business or trade.
Retirement accounts. If you establish savings or retirement plans out of your business for yourself or your employees, you may be able to deduct this as a business expense.
Because of the diverse nature of the economy, there are several business tax write-offs. Keep track of everything you spend to run your company — there’s a good chance those expenses may be deductible — and consult with a tax professional to make sure you remain in compliance.
Preparing your taxes
Working with a licensed accountant can ensure your taxes are complete and accurate. A tax preparer may also know all of the potential tax deductions for independent contractors, so you are able to reduce the amount you owe as much as possible.
Your accountant can also help you to store and track your business receipts, in addition to a detailed record and description that shows the reason for the expense. In the event of an audit, you need to prove your deductions are legitimate.
Also, good record keeping helps ensure you don’t lose out on a potential write-off that could work in your favor at tax time.
Get ready for tax day
To keep your small business on track, you have to think about important protections like insurance and business planning.
No matter when your taxes are due this year, start early so you’ll have the maximum opportunity to claim deductions and avoid penalties and interest.