From the Blog

It's TAX TIME!!!

January 17, 2023 8:46 AM | Harmony Maraldo (Administrator)

By Amy Petersen, CPA, aka “The Recovering Accountant” 

Important:  This article is meant to provide general information regarding taxes for US-based upholstery businesses.  Every situation is different.  Consult a tax advisor for more information regarding your specific circumstances.  

Yes, it’s that time of year referred to as “tax season” in the USA.  The federal income tax filing deadlines are quickly approaching: 

  • March 15, 2023, for Partnerships (Form 1065), S Corporations (Form 1120S), and C Corporations (Form 1120) 
  • April 18, 2023, for Individuals, including Sole Proprietors (Schedule C).  (We get a few extra days this year for the weekend and the DC holiday, Emancipation Day—yay!) 

Note:  Check your individual state’s Department of Revenue (or similar) website for filing deadlines, as your state may not follow Federal deadlines 

I would like to suggest that all of us upholstery business owners start working on our taxes sooner than later.  Like now.  Block off the time on your calendar, chain yourself to your desk, hire help, do whatever you need to do!   

“Why should I start thinking about taxes now?  It’s still months away!” 

The sooner your taxes are filed, the sooner you get your refund!  Or, if you’re going to owe, the sooner you file (or at least have a draft of your tax return prepared) the earlier you’ll know what that number is, and the longer you’ll have to save up for that bill.   

If you’re using an accountant to prepare your taxes, the sooner you have your information to him/her, the better the chance that they will not have to file an extension for you.  Extension calculations take time to prepare, and time=money. 

Either way, you’ll sleep better once you have them done.  Guaranteed. 

“Oh my gosh!  Where do I even start?” 

In an ideal world, you are using QuickBooks or another accounting program, you are keeping accurate books, your bank accounts and credit cards are reconciled for 2022, and you’re ready to go! 

Most of us don’t live in an ideal world.   

If you are using an accounting program, it’s time to review your data, enter missing information, and reconcile your accounts through the end of 2022.   

If you haven’t looked at a single number all year, don’t panic, but get busy gathering and organizing your income and expense numbers.  Build a spreadsheet using your bank and credit card statements, receipts, and other paperwork.  Categorize your expenses in a reasonable way.  Use your prior year taxes for a starting point for categories, look at the lines on the forms, or let TurboTax suggest groupings for you.  And don’t be afraid to create “other” categories that fit your individual business.   

“What if I’m forgetting something?” 

If you are using one bank account and one credit card for your business, and not co-mingling your personal expenses with your business expenses, no worries!  All the money in and out for your business (with a few exceptions) will be found on those statements.  If not, please consider making this a 2023 New Year’s Resolution: “I will only use my business accounts for business expenses, and I will only use my personal accounts for personal expenses.” 

If you’ve been using various personal accounts for business deposits and expenses, it’s going to take a while to sort through the statements, plus any other paperwork you have that supports the numbers.  It’s a good idea to start now.   

Here are some deductions that probably aren’t going to be run through your business accounts:   

  • Business use of the home.  Is your workroom in your basement, dining room, or other part of your home?  Then you will get a deduction for it based on a percentage of all your home expenses, or a simpler method of $5/square foot.    

  • Mileage.  Do you drive to clients, or to your supplier, or anywhere else business-related?  If you have tracked those trips on a log, with an app, or in your calendar, you can take a deduction.  For 2022, that deduction is 58.5 cents per mile for the first half and 62.5 cents for the second half, which adds up fast!  

  • Cell Phone and Internet.  If you use your cell phone and internet for business (don’t we all?), then take a deduction for the portion that is business related.  Do your best to estimate this portion.   

“There’s no way I’m going to be ready to file my taxes on time.  Now what?” 

About 1 in every 10 taxpayers files an extension, and most of them are business owners.  It’s OK! 

Here’s the important thing to remember about extensions:  They are an extension to file, NOT an extension to pay.  So based on last year, or the information that you do have pulled together, or (worst case) your gut, if you think you’re going to owe taxes, pay something into the IRS/state with your extension.   

What are the consequences of not paying an extension payment?  Once you file your taxes (no later than October 15th, 2023), you will most likely owe 0.5% percent of the amount due for every month or part of the month (even one day) past the April 18th deadline, plus interest on the amount due (currently at an annual rate of 7.0%), calculated on a daily basis.    

Please don’t blow off the extension.  The late filing penalties (you file after April 18th, owe taxes, and didn’t file an extension) are much higher than the late payment penalties outlined above, usually 5% per month or part of a month, plus interest. This is 10x the late payment penalties! 

One more thought about extensions:  If you file one, try not to wait until the extended due date of October 15th (for individuals and sole proprietors) to file your tax return.  Do it as soon as you can.  Your accountant will thank you and you’ll sleep better! 

Note:  Many, but not all, states accept the Federal extension as an extension of the state taxes, too.  Check with your Department of Revenue (or similar) or accountant to see if you need to file a separate state extension. 

“What if I can’t pay?” 

It happens.  If your business is new, or you made more money than you thought you did, or whatever the reason, you may owe more than you can pay.  The IRS (and most states) are happy to set you up on a payment plan.  The interest rates are less than putting this obligation on a credit card, and the terms are set up for you to succeed in paying it off.  If you file your tax return and can’t pay the amount due, you can be proactive and set up a payment plan (see IRS.gov), or you can wait for the IRS to send you a bill and “invite” you to set up a payment plan. 

“Is there anything good about tax season?” 

Yes!  Seeing your business profit to the point of owing taxes means that you are making money doing something that you love!

Powered by Wild Apricot Membership Software