New Business Filing 2021 Taxes? Here’s What You Need To Know
If you started your own business or side hustle in 2021, and want to get some additional info as we head into the upcoming filing season, you’ve come to the right place. First off, congratulations! Starting a business is a huge achievement. The past 18 months or so have been filled with a lot of change, uncertainty, and challenges. And if those changes have taught us anything, it’s to be prepared. Preparation helps you to be proactive and prevent future issues, rather than just reacting to whatever happens. Here are some tips to help you stay proactive with your 2021 business taxes.
Stay up to date
April 15th has historically been the deadline to file tax returns or request an extension of time to file (note: payment is still due by the filing deadline even if you’re granted an extension). However, in the last few years that doesn’t ring true. The deadline to file in 2020 and 2021 were extended to July 15th and May 17th respectively. Even in 2022, things are off-kilter - the filing date is April 18th, 2022. Although that’s not a pandemic-related extension - it’s just so the deadline falls on a business day. Both times the IRS moved the deadline, they only confirmed the date changes a few weeks prior to April 15th. What does this mean for you and your business taxes? Don’t assume, proceed as if it's business as usual, but also be aware that dates can change in the blink of an eye.
Stay Organized & Save Everything
No seriously. SAVE. EVERYTHING. Become that business owner on sitcoms with an (organized) shoebox of receipts. If your records are less than stellar, don’t worry, now is as good a time as any to get into the habit. Good recordkeeping comes in handy when you need to find that invoice for that printer repair or to see how inventory levels changed from month to month. And, in addition to making for a smoother and speedier tax filing, clean and accurate records will be a lifesaver if you ever find yourself in the middle of the dreaded AUDIT (cue ominous music with thunderclap and lightning). In all seriousness, many taxpayers lose money because of poor or inadequate recordkeeping, so if you haven’t been keeping the cleanest records - start today.
Review Any Grants or Loans
If your business benefited from a loan or grant last year, here are a few things to remember. Grants are free money - yay! But, nothing is truly free. In most cases, money received via grant is considered taxable income, meaning you’ll need to report it on your return, and the corresponding tax will need to be paid.
If you received a loan last year, good news - loans are considered a liability and aren’t taxable income. And, while you do pay interest on a loan, that interest may be tax-deductible, depending on how the money was used.
If you’re able to take advantage of business deductions, you can save money on your tax bill. Some typical deductions are:
- Travel expenses
- Business meals
- Rental or co-working space fees
- Home office expenses (supplies, utilities, furniture, tech)
- Legal and other professional fees
Note: These are just a few examples of deductions that are generally available - consult your tax advisor before deductions to ensure they accurately apply to your business.
Don’t Mix Business with Personal
Whether it’s a thriving small business or a side hustle just getting started, separating your business transactions from personal ones can help to provide a clearer dividing line between your finances. It can also assist in the protection of your personal estate from your business relations and provide a stronger case for any business deductions that may come under scrutiny. For additional information check out The Small Business Administration’s 5 Ways to Separate Your Personal and Business Finances.
Review & Verify
You’ve been in business for about a year, and you are on your way -now is a good time to revisit some of the steps you initiated when you started this journey. Verify all your state, county, and local licenses, registrations, and any other forms or applications, such as:
- Sales tax Registration(s)
- Business Licenses
- Annual Report(s)
- Any additional industry-specific permits and/or licenses
As you digest this information, you might feel anxious or overwhelmed, thinking you may have missed something or it’s too much to process. Just know that it’s perfectly normal to feel this way. Take comfort knowing that you are not alone - tons of small business owners get tax anxiety. As we march forward through the “Great Resignation”, lots of people just like you are leaving the 9-5 to pursue their small business dreams. There may be bumps along the way, but staying informed and organized will put you in a great, less bumpy place.
Psst - ComplYant can help you feel a little less anxious about your business taxes with free due date reminders and easy tax budgeting & saving tools! See how our features can help small businesses like yours here.