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Preparing for 2021 Tax Season

By January 6, 2021 No Comments
Four different tax forms on a light blue background with a fan of hundred dollar bills

The start of a new year brings a new to-do list. Another tax season is here, and it is a good idea to get a head start on preparing all the documentation needed for your tax returns. While there still isn’t any inclination of an extended deadline due to COVID-19, it’s better to be prepared for tax season than not in the event an extension is not granted. Here’s a list of everything you may need to gather to prepare for the 2021 tax season.

Payroll Tax Forms

When meeting with your accountant or tax preparer, it’s common for them to request federal Forms 941 and 940 and a W-3. Form 941 are withholding tax forms and are broken down by quarter. Form 940 is a summary of all the 941s and one report is produced for the year. W-3s are a summary of all employees’ Form W-2s. Most businesses will need to produce these forms, but it will also depend on whether your business uses a general payroll processor, or is using the services of a Professional Employer Organization (PEO). If using the services of a payroll provider, then your business will need to produce these forms, and may be able to obtain them from your payroll processor or accountant. If your business uses PEO services, a major benefit is that these forms are now filed under the PEO’s tax accounts, and your business is no longer responsible for filing these reports under your business name and tax accounts. Be sure to check with your payroll company to confirm what services you have and what reports you can obtain in place of these federal forms if needed.

Another form you may need to produce—regardless of what type of payroll provider you have—is a Form 1099 or Form 1096. These forms need to be produced if your business hired any independent contractors or freelance workers/consultants. A Form 1099 needs to be produced for each person categorized as an independent contractor, and the Form 1096 is the summary of all Form 1099s.[1] These are typically due by January 31 each year.

Income Sources

You will also need to provide all records of any and all income your business experienced in 2020. Income can come from daily operations as well as investment and ancillary income. You can obtain the sources of your income from sales receipts, the year’s sales records, any returns and allowance, your business’ checking and savings accounts, and any other income source such as rental income or federal and state tax credits.[2] Be sure you are completing the appropriate tax return form for your business as well. If your business is a C Corporation or limited liability company (LLC) must complete Form 1120. If you are an LLC taxed as a C-Corp, you will need to file a Form 1065. If taxed as an S-Corp, you will need to file Form 1120S.[3] You can always check with your accountant or tax preparer on which form is the correct one your business must file.

Cost of Goods Sold

If your business produces, purchases, or sells merchandise, you should be recording inventory at the beginning and end of each tax year. For the 2020 tax season, be sure to prepare your inventory in dollar amount at the beginning of the year, any inventory purchases, and your inventory in dollar amount at the end of the year.[2]

Business Expenses

There are many expenses each year for businesses and these need to be recorded for tax returns as well. Business expenses could include any of the following: advertising, business insurance, rent expense, employee benefits expense, computer and internet expenses, phone (e.g., landline or cell phones for business usage), professional fees, and more.[2] Be sure to check with your accountant or tax preparer to make sure you have provided all necessary expenses for your tax returns.

Tax season can bring a great deal of stress to any business owner. There are many boxes to check and items to prepare before filing any tax returns. Working with a PEO like Harbor America can minimize the stress of tax season by being your go-to service provider for any payroll reports and tax filings you need. Our team of payroll administration professionals will be able to assist you in determining which reports your business needs to file and will assist in producing the necessary payroll forms for you, making your job a little less stressful during a very demanding time of year.

 

Sources:

[1] Turbo Tax- What is an IRS 1099 Form?

[2] HRBlock- Small Business Tax Prep Checklist

[3] Credit Karma- Does My Small Business Need to File a Corporate Tax Return?

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