3 Questions About Filing Taxes as a Business Owner, Answered

3 Questions About Filing Taxes as a Business Owner, Answered

Gail Rosen, CPA, PC, AFCU Member

If you’re a business owner, you’re likely grappling with the unprecedented challenges of the COVID-19 crisis. Whether your operations shut down entirely or if you’re working with limited capacity, your revenue is perhaps a fraction of what is was pre-pandemic. Right now, you’re focused on making ends meet, following news about government relief1 for businesses in the form of loans and navigating the process of getting that badly needed money.2 You’re probably also thinking less about tax season, which in normal times would have ended on April 15, but this year has been extended to July 15. But while the extra time may relieve some pressure, you may want to reconsider waiting to file – especially if there’s a chance you’ll receive a refund that will help your current financial situation.
Person holding pen

Here are three questions (and answers) that you might be asking about filing taxes as a business owner for the first time:

1. Are there different ways of filing taxes as a business owner?
Your filing requirements depend on the type of entity you set up for your business. Many small businesses are set up as a single member LLC or sole proprietor. Your first return for your business is due the year you complete your first sale. If you are a single member LLC or sole proprietorship, you file a Schedule C as part of your 1040 “Profit or Loss from Business.” You list your sales and subtract deductible expenses, which equals net income or loss. This net income (or loss) is then added (or subtracted) from your other taxable income on your tax return.

2. How do I Know what to include as a business expense?
For an expense to be deductible it has to be “ordinary” and “necessary.” This includes money you spend on the following:
• Office supplies
• Business dues
• Business publications
• Accounting fees for your business
• Business cards
• Eligible business meals (50% deductible)
• Gifts (limited to $25 per person per year)
• Postage
• Printing
• Continuing education
• Computers, software, etc.

Every deduction saves you money since a small business pays federal tax, state tax, and both sides of Social Security and Medicare (since you are the employee and the employer). Make sure your bookkeeping is in order so you don’t miss out on the ability to write off any business expenses.

3. If I get a refund, what should I do with it?
Tax refunds for businesses – as with individuals – often serve as a “forced savings” that can be accessed yearly. If you do get a refund this year, you can use it to help keep your business afloat during the ongoing COVID-19 crisis. If you have enough cash flow to fund operations and still make a profit, consider putting your refund into a business savings account. Affinity offers three different options for such accounts that can help you build up a nest egg for your business.

Tax season can be a daunting time of year, whether you’re an individual filing or a business owner. The uncertainty and daily disruption of the COVID-19 crisis makes it all the more difficult. But if you understand the basics and get the right help (consider contacting an Affinity business specialist), tax season can go from nuisance to opportunity – to get back some of your hard-earned money, and save or invest for the future!

For additional information and updates from Affinity about COVID-19, please visit https://www.affinityfcu.com/banking/we're-here-for-you.aspx


This information is for informational purposes only and is intended to provide general guidance and does not constitute legal, tax, or financial advice. Each person’s circumstances are different and may not apply to the specific information provided. You should seek the advice of a financial professional, tax consultant, and/or legal counsel to discuss your specific needs before making any financial or other commitments regarding the matters related to your condition are made.  

1 Retrieved from https://apnews.com

2 Retrieved from https://www.sba.gov/