Are you curious about who should get a 1099 form, how to issue one, or what rules apply in different scenarios? In this article, we’ll provide the answers to these questions about 1099 forms and more.

What Is a 1099 Form?

The 1099 form, issued by the Internal Revenue Service in the United States, serves several specific purposes, each with a different variant of the form. Some of these include:

• Form 1099-MISC: This version is issued when a business pays a non-employee more than $600 in a year. It’s often used for independent contractors, freelancers, or other non-employee workers.
• Form 1099-INT: This version is for reporting interest income, for instance from a bank or other financial institution.
• Form 1099-DIV: This version reports dividend payments made by corporations to their shareholders.

Just as businesses use W2 forms to report wages, tips, and other compensation paid to employees, 1099 forms are used to report different types of income received by individuals or entities.

The use of these forms assists the IRS in ensuring accurate tax reporting and payment, while enabling individuals and entities to accurately determine their tax liabilities based on their total annual income.

Despite the similarities with W2, a key distinction is that 1099 forms don’t account for any tax withholdings, as taxes are typically not withheld from the types of income these forms report.

• READ MORE: Basics ABout 1099 forms for Small Business Owners

What Types of Income Payments Are Reported on a 1099 Form?

While 1099 forms often are associated with income paid to independent contractors, they also can be used to report a variety of other income payments and miscellaneous income. Some of the more common types of income payments reported on a 1099 include (but aren’t limited to):

• Non-employee compensation
• Rent or royalty payments
• State or local tax refunds
• Gambling winnings
• Brokerage gains or losses
• Dividends and interest payments
• Commissions
• Non-qualified deferred compensation
• Medical and healthcare payments
• Prizes and awards
• Crop insurance proceeds
• Fishing boat proceeds

What Are the Types of 1099 Forms?

A 1099 might be a common IRS form, but it’s available in multiple versions. A few of the most common types of 1099 forms include:

• 1099-NEC reports nonemployee compensation such as income earned as an independent contractor, freelancer, or self-employed individual.
• 1099-MISC reports payments like rent, royalties, prizes and awards, substitute payments in lieu of dividends, medical and health care payments and crop insurance proceeds.
• 1099-INT reports interest payments from banks, brokerage firms, and other investment firms.
• 1099-DIV reports payments to investors, including cash dividends.
• 1099-G reports unemployment payments or local tax refunds.
• 1099-R reports payments from taxable pension retirement plans or individual retirement accounts (IRAs), as well as certain life insurance plans and annuities.
• 1099-B reports income from commodities, stock sales, certain types of bartering, and other securities.
• 1099-S reports real estate transactions that gain money, including the sales of land, residential properties, and commercial or industrial properties.
• 1099-K reports payments received through reportable payment card transactions of third-party payment network transactions. These include sources like PayPal and Venmo.

1099 for Digital Payments

With the rise of digital payment platforms like PayPal and Venmo, businesses must be aware of the 1099 reporting requirements for transactions made through these services. The IRS requires reporting for business-related digital payments that exceed specific thresholds.

For instance, if transactions surpass $600, they may necessitate a 1099 form. This requirement calls for businesses to stay updated on the tax implications of digital transactions and ensure compliance with these evolving IRS guidelines.

Ultimately, providers like PayPal may be required to issue a 1099-K for all users earning more than $600. However, that requirement has been postponed again, and they are thus only required to issue the form to users earning more than $20,000 with at least 200 transactions.

• READ MORE: How to File Self Employment Taxes

What Common 1099 Rules Must a Business Owner Follow?

Like many other aspects of filing income taxes in the United States, 1099 forms have undergone their share of changes in recent years, so it’s important for a small business owner to keep abreast of the newest applicable rules, such as the following:

New Forms

Beginning with a recent tax period, the IRS reintroduced the 1099-NEC, which hadn’t been used for decades. Prior to this change, payments to non-employees such as independent contractors, which were subject to self-employment taxes, were reported on a 1099-MISC. Such income is now reported on a 1099-NEC.

$600 Threshold

Businesses are required to send copies of Form 1099-NEC to the IRS and contractors if they pay $600 or more in compensation. The $600 threshold also applies to other 1099 forms to report payments such as non-qualified deferred compensation, crop insurance proceeds, rent, prizes, and more.

Taxpayers who earn less than $600 usually are still required to report the income with their tax obligations, even if they did not receive a 1099.

Dates and Deadlines

Businesses must supply 1099 to contractors and vendors and file a copy with the IRS by Jan. 31. However, if that date falls on a weekend, the due date is the following Monday. Some types of 1099 forms require IRS filing by Feb. 28, but copies should still be furnished to recipients by Jan. 31.

Foreign Workers

If you hire a non-U.S. citizen who works remotely via the Internet from another country, generally speaking, you do not need to file a 1099 for that person. However, if the foreign worker performs any work inside the United States, you would need to file the 1099.

Payments to Corporations

Businesses usually do not need to issue 1099 forms for payments made to corporations.  For example, if paying a corporation that provides web design services or some other business service, they do not need to issue a 1099.

This can include independent contracts operating as an S Corp, as well. However, it’s important to remember that an LLC, or limited liability company, is not the same as a corporation.  In general, an entity is expected to send 1099 forms to most small business LLCs.

PayPal and Credit Card Payments

In most cases, businesses are not required to send 1099 forms to independent contractors or unincorporated businesses if they were paid electronically via PayPal or credit cards. Instead, the credit card companies and payment companies will handle any required reporting.

Personal Payments

1099 forms are not required for personal payments. Entities are required to issue 1099-MISC reports only for payments made in the course of doing a trade or business. If you run a non-profit organization, however, that’s considered a business for purposes of 1099s.

1099 Errors

A payer who identifies an error after issuing a 1099 form must re-issue a corrected version to the payee and update the filing with the IRS. If a payee receives a 1099 that contains an error, they should reach out to the payer to request a correction. If the form cannot be amended, the payee must attach an explanation to their tax return and accurately report the income.

Record-Keeping and Compliance

Maintaining accurate records is vital for adhering to 1099 compliance. Businesses need to track all payments to contractors, freelancers, and other non-employees throughout the year.

Proper documentation is key, including detailed logs of payments and retaining copies of contracts and work orders. Timely filing of 1099 forms and accurate reporting of payment amounts are crucial for smooth tax processing and avoiding any penalties from the IRS.

• READ MORE: Best Tax Software for Self-Employed People

How to Issue and File 1099 Forms

Issuing and filing a 1099 form is simple once the payer has the proper information. To fill out a 1099 form, a business needs four pieces of information:

• Payer’s information
• Payee’s information
• Nonemployee compensation amount
• Tax information, such as Social Security number or tax ID number

The first box of the 1099-NEC contains the information on the paying business. There is only one box for this information, and you must include your name and business name, street address and phone number.

The second section of the 1099-NEC is for the paid contractor’s information. To obtain this, the payer will send the payee a W-9 form requesting their name, address, and taxpayer identification number. However, if the contractor is not a U.S. resident, the payer will need a W-8BEN or W-8BEN to certify that they reside outside the country.

After a business fills out these sections, it needs only to input the compensation amount that the contractor received during the tax year.

After completing the 1099 form, make sure to verify the state 1099 form requirements. Some states mandate the submission of forms, while others do not. To comply with federal regulations, the business must send two copies: one to the IRS and one to the payee, ensuring that both reach their destinations by January 31. Detailed filing procedures for each of these copies can be found on the first page of the 1099 form.

A new online portal from the IRS, called the Information Return Intake System, enables users to create and file 1099 forms.

• READ MORE: Don’t Forget This New Tax Rule for Small Business

1099 Related Penalties

Businesses that fail to issue a 1099-NEC or 1099-MISC by the filing deadline could face penalties ranging from $50 to $280 per form for the current tax year, depending on how late the form was submitted.

Businesses that intentionally disregard a payee’s request to correct 1099 with errors can be subject to a minimum penalty of $570 per form, or 10% of the income reported on the form, with no maximum.

Automating 1099 Processes

The advent of technology has made managing 1099 forms more efficient. Many modern accounting software solutions offer features to automate the generation, filing, and tracking of 1099 forms. This automation enhances accuracy, saves time, and reduces administrative burdens.

When choosing a 1099 automation tool, consider factors like integration with existing accounting systems, e-filing capabilities, and secure data handling.

This technological shift is reshaping how businesses handle their 1099 processes, offering a more streamlined approach to financial management.
https://youtube.com/watch?v=_yHPIvtiKjs%3Fsi%3D07wWf0OfVlIZeMTr

FAQ

What If You Don’t Receive a 1099?

Taxpayers earning qualified income should receive a 1099 form from the payer no later than early February, but what happens when they don’t? The first step to take if a 1099 isn’t received is to contact the payer. If it’s still not received by Feb. 15, the party should call the IRS for help at 1-800-829-1040.

Regardless of whether a 1099 is received, the taxpayer is still required to report the income on their tax return. This can often be done by obtaining the information from alternative sources, such as bank statements.

What Is an Author’s Income Threshold for Book Royalties?

Royalties paid to an artist, such as an author, musician, songwriter, or singer, are considered taxable income. Whether or not those royalties are subject to self-employment tax depends largely on whether the artist is a professional or a hobbyist.

The United States Tax Code requires publishers to report royalties paid that exceed $10 in Form 1099-MISC.

What are Other income payments considered on a 1099?

Form 1099-MISC is used to report payments categorized as “other” than nonemployee compensation made by a trade or business to individuals or entities. This “other” income can include payments for rent, royalties, prizes, and awards, as well as substitute payments made in place of dividends.

The 1099-MISC form includes a section for payments that do not fit into its specified categories, which is labeled as “other income.”

This is where a business will report payments of $600 or more made for activities including participation in a medical research study, monetary prizes or awards, termination of self-employed insurance salespeople and punitive damages, damages for nonphysical injuries or sickness and any other taxable damages.

How Do You Report Interest Income to the IRS?

Most interest that taxpayers can withdraw without incurring a penalty is regarded as taxable income by the IRS, although there are some exceptions.

Interest recipients should receive Copy B of form 1099-INT or form 1099-OID, which report taxable or tax-exempt interest payments of $10 or more.

These forms are typically issued by a broker as part of a composite statement. Interest earners must report all taxable and tax-exempt interest on their federal income tax returns, whether or not they receive a Form 1099.

Where Can You Get 1099 Forms?

Blank 1099 forms are available from a variety of convenient locations. Businesses can get paper copies at many post offices, public libraries and even office supply stores.

They also can request 1099 forms from the IRS, which can be mailed to them in paper form or downloaded to print. However, it’s important to know the correct 1099 form to request.

A new IRS online portal, known as the Information Return Intake System allows users to electronically create and file 1099 forms. Some accounting and tax-preparation software services also will prepare, print and file certain 1099 forms, such as the 1099-NEC.

An accountant or tax preparer can also e-file 1099 forms together with a business’s tax returns. It’s important to note that if a business is required to file more than 250 1099s, it must do so electronically. Businesses that do not comply and lack an approved waiver may face penalties of up to $100 for each return.

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This article, "Form 1099 Rules for Employers" was first published on Small Business Trends

What are Tax Preparation Services?

Tax preparation service companies are a place to go for help with filing your tax return. A tax professional can help with tax forms, calculate your adjusted gross income, and let you know what deductions and credits you are eligible for, making your experience quicker and much less confusing.

Choosing the Best Tax Preparation Services: Our Methodology

Choosing the right tax preparation service is crucial for small business owners and entrepreneurs, as it can significantly impact their financial health and compliance. Here’s our methodology for assessing tax preparation services, using a scale of 1 to 5, with 5 being the most important:

1. Accuracy and Compliance (5/5):
   • Track record of accurate and compliant filings
   • Knowledge of current tax laws and regulations
   • Guarantees or assurances against filing errors
2. Cost and Value (4/5):
   • Transparent pricing without hidden fees
   • Competitive rates for the level of service provided
   • Value for money considering the services offered
3. Range of Services (4/5):
   • Comprehensive service offerings (e.g., federal, state, local, and international taxes)
   • Additional services like tax planning and financial advice
   • Specialization in relevant industries or tax situations
4. Ease of Use and Accessibility (4/5):
   • User-friendly interface for digital services
   • Availability of in-person assistance where necessary
   • Accessibility for people with disabilities
5. Security and Privacy (5/5):
   • Robust measures to protect sensitive financial data
   • Compliance with privacy regulations and best practices
   • Clear and trustworthy privacy policies
6. Customer Support (4/5):
   • Availability and responsiveness of customer support
   • Quality and helpfulness of tax professionals
   • Support options (phone, email, live chat, in-person)
7. Technology and Tools (3/5):
   • Utilization of up-to-date software and technology
   • Availability of tools for easy document upload and management
   • Integration capabilities with accounting software
8. Reputation and Reliability (4/5):
   • Positive reviews and testimonials from clients
   • History of reliability and trustworthiness in the industry
   • Professional accreditations and certifications
9. Turnaround Time (3/5):
   • Efficiency in completing and filing tax returns
   • Timely updates and communication throughout the process
   • Ability to handle urgent or last-minute filings
10. Educational Resources (3/5):
    • Provision of resources to help clients understand their taxes
    • Availability of workshops, webinars, or informational content
    • Guidance on tax-saving strategies and financial planning

By meticulously evaluating each tax preparation service against these criteria, we aim to provide small business owners with reliable and effective options that can handle their tax needs with precision and care.

Where is the Best Place to Get Your Taxes Done?

Whether you want to do your own taxes or would like to get the help of tax professionals there are some really great options to choose from. At the top of our list is H&R Block with great prices, easy-to-use online services, and a plethora of locations that easily make it the best overall.

Jackson Hewitt’s services are the easiest to use and offer lots of tools to make filing a breeze. If you like to do your taxes online from the comfort of your own home then Turbo Tax Live is a fantastic option to get your taxes done right.

Last but not least is Ey TaxChat, an online tax preparation service that is especially good for the self-employed tax filer. We will learn more about these options and a few others in the following sections.

The 8 Best Tax Preparation Services

We have put together a list of the 8 Best Tax Preparation Services and online tax software that deliver thorough support for filing your taxes. These services offer dependable assistance from knowledgeable tax professionals who will help both small business owners and individuals ensure that their returns are accurate and incorporate all available deductions and credits.

H&R Block– Best Overall

Heading our list for best overall tax service is H&R Block. H&R Block was started in 1955 by two brothers and has grown to over 12,000 locations worldwide. It has multiple services to choose from, the best tax software, and competitive prices that will take care of all your individual or business income tax preparation needs.

H&R Block Pros

• Affordable pricing starting under $100
• Maximum refund guarantee
• Thousands of locations to provide accessible services
• Various tax services are available
• Offers free tax advice to filers using online services
• Offers a free file option for simple tax returns

H&R Block Cons

• A certified public accountant may not be available to help you
• More complex filings come with higher prices

H&R Block Pricing

H&R Block offers transparent pricing. A tax professional will walk you through all the forms you will need, provide free tax advice, and advise you of any fees so that you know how much you will be spending before you even begin.

Jackson Hewitt– Ease of use

Jackson Hewitt is a tax preparation service that is known for being one of the easiest services to use. This reputable service was started in 1982 and now has over 6,000 locations across the US. They offer a variety of different tax filing and preparation services for both individuals and businesses.

Jackson Hewitt Pros

• Better Business Bureau accredited with an A+ rating
• Various options, such as dropping off your paperwork or uploading it online
• Walk-in preparations available
• Thousands of Jackson Hewitt office locations, including some located inside Walmart
• Early Refund Advance Loan available

Jackson Hewitt Cons

• Does not offer a free filing option
• Not all tax professionals are CPAs

Jackson Hewitt Pricing

Jackson Hewitt’s pricing is not clear and easy to find on their website.

Turbo Tax Live– Overall Best Online Experience

Turbo Tax Live is a leading tax preparation service that provides a simple and convenient online filing experience. Launched in 1993 by Intuit, it has consistently been rated as the best online tax service and is recognized as one of the top tax software options for small business owners.

Turbo Tax Live Pros

• Accredited by the Better Business Bureau with an A- rating
• Allows you to file your taxes online or using a mobile app for an easy and accessible experience
• In-depth question and answer guidance available 24/7 with real accountants
• Instant refund estimates

Turbo Tax Live Cons

• If you are self-employed and are filing with one or more states, it can become pricy. Turbo Tax Live is probably not the best tax software for small business filers.
• You are unable to go into a physical location and speak with someone in person

EY TaxChat-Best for Self-Employed

EY TaxChat is a top tax preparation service that is completed via your computer or phone and is the best for freelance income filers and small business owners. It was launched in 1986 by Ernst and Young and has a great reputation for high-quality tax services.

EY TaxChat Pros

• Ability to speak with a tax preparer who will be able to help you understand the meaning of standard deduction, explain things on your state tax websites that are not so clear, or help to file your side business taxes.
• Easily send documents using your computer or electronic devices
• Get paired with a professional who will be able to help you with your specific tax needs

EY TaxChat Cons

• It can be pricier than other competitors
• No option to speak with someone face-to-face

EY TaxChat Pricing

Pricing for EY TaxChat begins at $199 and will vary depending on each individual’s needs.

Cash App Taxes

Cash App Taxes is a top tax preparation service that offers a fast and easy way to get your taxes done. This app was originally Credit Karma and Cash App bought out the tax service that is now Cash App Taxes. It is a fast and easy way to get your taxes filed online.

Cash App Taxes Pros

• File online via your mobile device
• A free base price and state tax filing fee
• Get your refund two days earlier by having your refund deposited directly into your Cash App account
• Offers a guarantee to get you the maximum refund possible

Cash App Taxes Cons

• Not all states are able to file through Cash App Taxes
• This is not the best choice for those who have more complex tax needs

Cash App Taxes Pricing

Cash App Taxes are always free, no matter what your situation.

TaxSlayer

TaxSlayer originated in Agusta, Georgia, in 1965 as Rhodes-Murphy & Co. It started as a tax preparation service and has changed a couple of times over the years and is now an affordable software for the average everyday tax filer.

TaxSlayer Pros

• Free federal tax filing for all active duty military with no restrictions
• Affordable filing options for your individual needs
• Simply Free is a 100% free option for filers with simple tax situations. With this option, federal tax filing is free, as well as the first state filing.

TaxSlayer Cons

• No early refund loan services
• It is not good for individuals who want free tax services with high-income

TaxSlayer Pricing

TaxSlayer offers four tiers of pricing for different tax needs.

Liberty Tax

Liberty Tax is a tax preparation service that was founded in Virginia Beach, Virginia, in 1997 and serves individuals and small businesses. In the US and Canada, there are over 2,500 branches, and they have received several accolades over the years for their exemplary service.

Liberty Tax Pros

• App available for remote filing
• Do your own taxes online and utilize the virtual customer support team
• Brick-and-mortar locations available for more personal filing experience

LibertyTax Cons

• No free filing option for simple tax returns
• Does not offer 24-hour support

Liberty Tax Pricing

TaxAct

In 1998, TaxAct was founded and has helped many individuals and businesses file their own taxes digitally, regardless of their tax situation. This online software is also equipped with many tools to make filing easy for any tax filer.

TaxAct Pros

• Downloadable app to file taxes via mobile devices
• Free advice available from a live tax expert
• Access to free tools that make filing your taxes easier

TaxAct Cons

• No physical location
• Possibility of technical problems occurring with the software

TaxAct Pricing

Tax Software

Tax software designed for small businesses streamlines the often intricate process of preparing and filing income tax returns. Here’s a deeper look into the world of tax software:

• Types of Tax Software:
  • Form-Based Software: This type primarily focuses on providing digital versions of tax forms. Users input their data directly into these forms, which often replicate the appearance and structure of the paper counterparts.
  • Interview-Based Software: Instead of directly filling out forms, users answer a series of questions. Based on these answers, the software determines which forms to use and automatically populates them.
• Key Features:
  • E-filing Services: Allows users to electronically submit their tax returns, ensuring quicker processing times and receipt confirmations.
  • Document Storage: Stores important tax-related documents, like W-2s or 1099s, in a digital format, which can be beneficial for record-keeping and future reference.
  • Credit and Deduction Suggestions: The software analyzes user data to recommend tax credits and deductions that the taxpayer may be eligible for, ensuring they get the maximum refund possible.
  • Audit Protection: Certain software includes features designed to reduce the likelihood of an audit or to provide assistance if an audit does take place.
  • Multi-state Filing: For businesses that operate in multiple states, some software provides a seamless option for filing in different states.
• Benefits for Small Businesses:
  • Cost-Effective: Using tax software can be significantly cheaper than hiring a tax professional, especially for businesses with straightforward finances.
  • Time-Saving: Automated calculations and form population reduce the time spent on manual data entry.
  • Accuracy: The risk of errors is minimized as the software automatically performs calculations and checks for common mistakes.
  • Year-Round Access: Most platforms provide year-round access, enabling businesses to enter data, monitor expenses, and modify financial strategies as necessary.
• Considerations:
  • Complexity: While software can handle a variety of tax situations, businesses with particularly intricate finances might still benefit from consulting a tax professional.
  • Updates: As tax laws and regulations change, it’s essential to ensure that the software is regularly updated to remain compliant.

Maximizing Tax Benefits: Tips for Small Businesses

In the intricate landscape of small business taxation, unlocking the full potential of tax benefits can significantly bolster financial health and growth. Navigating this realm requires a blend of strategic planning and astute awareness of the tax advantages available.

Here are some essential tips for small businesses aiming to maximize their tax benefits:

• Stay Informed on Tax Deductions: Regularly updating your knowledge about the ever-evolving tax deductions is critical. This includes understanding deductions related to home office expenses, business travel, and equipment purchases. Leveraging these deductions can substantially lower your taxable income.
• Consider Retirement Plans: Investing in retirement plans like SEP IRAs or Solo 401(k)s not only secures future financial stability but also offers immediate tax benefits. Contributions to these plans are typically tax-deductible, reducing your current taxable income.
• Utilize Tax Credits: Tax credits are a powerful tool as they directly reduce your tax bill. Credits may be available for certain business activities like hiring new employees, implementing environmentally friendly practices, or research and development efforts. Staying informed about these opportunities can lead to significant savings.
• Employ Effective Accounting Strategies: Accurate and efficient accounting practices lay the foundation for maximizing tax benefits. This includes meticulous record-keeping, which simplifies the process of claiming deductions and credits and ensures compliance with tax laws.
• Seek Professional Advice: The complexity of tax laws often necessitates professional guidance. Collaborating with a knowledgeable tax advisor can unveil hidden tax-saving opportunities tailored to your specific business scenario.
• Leverage Tax Software: For businesses handling taxes internally, utilizing advanced tax software can simplify the process and ensure accuracy. These tools often come equipped with features that highlight potential deductions and credits.
• Plan for Tax Payments: Effective tax planning involves setting aside funds for tax payments throughout the year. This proactive approach prevents cash flow issues and potential penalties associated with late or insufficient tax payments.
• Understand Industry-Specific Benefits: Different industries often have unique tax incentives. Understanding and leveraging these industry-specific benefits can lead to considerable tax savings.

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FAQ

Is it Worth Going to a Tax Preparer?

Tax season can be quite a headache, and many people wonder if it’s worth going to a tax preparer for help. The answer is yes! It may cost more money to hire someone for professional tax assistance, but the time and effort saved in the long run can be well worth it.

A tax preparer typically has extensive knowledge of the tax code and tax deductions, such as self-employed taxes, which they can use to maximize their return or minimize what they owe if they are facing an audit. Tax preparers also have access to the latest software updates that make tax filing quicker and easier, meaning less stress for you during this busy time.

So, if you’re feeling overwhelmed with managing your finances during tax season, a professional tax preparer could be just the thing to help make things simpler.

Who Should Use a Tax Preparation Service?

Any small business owner or self-employed individual who needs help filing their taxes should consider using a tax preparation service. These services can help with everything from calculating and claiming tax deductions to filing your taxes on time. They also offer expert advice and guidance that can help you minimize your tax liability and maximize your refund. Here’s a more detailed overview to help you decide whether a tax preparation service is right for you:

• Small Business Owners:
  • Manage complex financial transactions.
  • Need to navigate various tax laws specific to businesses.
  • Can benefit from identifying potential deductions related to business expenses.
• Self-Employed Individuals:
  • Handle fluctuating income levels.
  • Need to consider self-employment taxes.
  • Can take advantage of specific deductions like home office or business mileage.
• Individuals Needing Assistance with Calculations:
  • Want assurance in accurate tax computations?
  • Require help with calculating deductions and credits.
  • Seek to avoid potential errors that can lead to penalties.
• Those Seeking Timely Filing:
  • Want to ensure taxes are filed before the deadline.
  • Seek help in organizing and managing necessary tax documents.
  • Wish to avoid late-filing penalties.
• Taxpayers Wanting Expert Advice:
  • Aim to understand the nuances of tax laws.
  • Seek guidance on minimizing tax liability.
  • Want to maximize potential refunds?
• Individuals with Complex Financial Situations:
  • Have multiple sources of income, including investments or rental properties.
  • Have undergone major life changes like marriage, divorce, or the birth of a child.
  • Need to navigate inheritance or estate taxes.

What is the best free tax software?

If you are looking for free tax help and free filing for simple tax returns, then H&R Block’s free version is the best choice for you. You will not only be able to file your taxes quickly and easily online but will have access to online tax help and it is all completely free.

Which online tax service gives the biggest refund?

Turbo Tax and H&R Block come pretty close when it comes to which online service gives the biggest tax refund. This is mostly because they are both used by a lot of small business owners who can claim many different deductions on their taxes. Often, they will be owed money due to overpayment of taxes as well, which also pads their expected refund. Finally, both services provide a maximum refund guarantee for their services.

How much does it cost to have someone else prepare your taxes?

The cost of having someone else prepare your taxes can vary from $100 and up. Usually, it starts with how they price their services and whether they charge a flat rate or charge for individual items. Additionally, factors including your location, the complexity of your taxes, and software costs will also influence how much you will pay. More complex tax situations come with a higher price tag.

How Is a Tax Preparation Service Different From Tax Preparation Software?

While tax preparation software can help you prepare your taxes, it does not offer the same level of expertise and guidance that a professional tax preparation service can. Tax services are staffed by tax professionals who are experienced in dealing with all aspects of tax filing and have the knowledge and resources to help you get the most out of your return.

Tax services typically offer additional services like document storage and e-filing that are not available with tax preparation software. The decision to use a tax preparation service or software comes down to your needs and preferences as a taxpayer.

How long does it take for a tax preparer to do your taxes?

The time it takes for a tax preparer to complete your taxes will depend on a number of factors, including the complexity of your return and the efficiency of the tax preparation service. A professional tax preparer may be able to complete and file your taxes in as little as a few hours, or it may take several days or weeks, depending on your needs and situation.

Truly, the best way to find out how long it will take for a tax preparer to do your taxes is to consult with a tax professional directly.

Should I hire a tax preparation service or use tax prep software to do it myself?

There is no right or wrong answer when it comes to whether you should use a tax preparation service or software. Both options offer benefits and drawbacks, and the right choice will depend on your personal situation, budget, and preferences.

Some factors to consider when deciding between a tax prep service and software include the level of expertise and support you need, the complexity of your taxes, and the cost. In the end, it all depends on your individual needs.

How much can a small business make before paying taxes in the US?

According to the IRS, small businesses in the US are generally obligated to pay taxes on any income exceeding $400. Additionally, various factors like expenses, deductions, and credits can influence your tax liabilities and ultimately affect the total amount of taxes you owe.

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This article, "The Best Tax Preparation Services" was first published on Small Business Trends

What is a Limited Liability Company LLC?

An LLC is a type of business structure that combines the tax benefits of a partnership with the liability protection of a corporation. In an LLC, owners are referred to as “members,” and their personal assets are typically protected from company debts or lawsuits.

The management structure of an LLC can be either member-managed or manager-managed, and profits and losses can be passed through to members and taxed as personal income.

How is an LLC taxed by the IRS?

An LLC, or Limited Liability Company, is a hybrid business structure that combines the features of both corporations and partnerships. As such, the taxation of an LLC is unique and can be confusing to understand.

The Internal Revenue Service (IRS) applies different tax treatments to LLCs based on whether they are classified as Single Member LLCs or Multi-Member LLCs.

Single Member LLCs

Single Member LLCs are taxed by the IRS as a disregarded entity. This means that the LLC income and expenses are reported on the owner’s personal income taxes, along with all other income sources.

The owner pays income tax according to their taxable income bracket, regardless of how much profit their business made that year.

Multi-Member LLCs

Multi-member LLCs are treated like a partnership for tax purposes and must file Form 1065 with the IRS each year. Each member then reports their share of profits and losses, which should be set in the LLC operating agreement, on their personal income tax return using Schedule E (Form 1040).

In most cases, this allows them to take advantage of pass-through taxation, which allows all net income from the business to be taxed at individual rates rather than being subject to double taxation.

Who has to pay taxes owed by an LLC?

The IRS requires that each member of an LLC pay tax on their respective share of income, regardless of whether or not they are actively involved in the business.

This implies that if one individual possesses a majority share in an LLC, they will be responsible for a greater share of the taxes compared to someone who holds only a minor stake in the company.

If the LLC fails to make payments toward its taxes, all members can be held personally liable for the debt.

LLC Tax Benefits

LLCs provide several tax advantages that contribute to their popularity among small businesses. Here are some important tax benefits of registering as an LLC:

• Pass-Through Taxation: LLCs are taxed as “pass-through entities,” meaning their business income and expenses are reported on the individual member’s personal income tax returns. Since LLC owners don’t pay corporate federal income taxes, this eliminates the need for double taxation and allows for profits to be taxed at individual rates rather than corporate rates.
• Lower Taxes: The pass-through structure also allows LLC members to deduct certain business expenses from their gross income, reducing their overall tax liability. Some states also offer lower or no taxes for certain types of LLCs, such as those operating in multiple states or that qualify as S Corporations.
• Flexible Ownership Structures: LLCs offer flexible ownership options that allow members to decide how they want to divide up profits and losses among themselves without having to worry about complex partnership agreements between all owners. This makes the LLC structure one of the simplest ways to legally operate a business with multiple owners.

How can an LLC minimize its income tax burden?

An LLC can minimize its income tax burden by taking advantage of pass-through taxation, deducting business expenses from its gross income, retaining profits, and planning ahead.

Members may also want to work with an experienced accountant or financial planner to ensure they are taking full advantage of any potential tax breaks that may be available.

Proper planning and understanding of the various tax rules and regulations can help LLCs maximize their profits while keeping their taxes low.

What can an LLC deduct from taxes?

As a business owner, it’s important to understand what expenses you can deduct from your taxes to lower your tax bill.

LLCs have the advantage of flexibility when it comes to taxation and can choose to be taxed as a sole proprietorship, partnership, S corporation, or C corporation business entity. Here is a list of common tax deductions that apply to LLCs:

• Business-related travel expenses
• Advertising and marketing expenses
• Legal and professional fees
• Rent or lease payments for business property
• Employee salaries and benefits
• Office supplies and equipment
• Vehicle expenses for business use
• Utilities and insurance premiums.

Tax Tips for LLC Owners

Are you an LLC owner? Do you know how to maximize your tax savings? Here are a few tips that can help:

• Review your expenses: Make sure to thoroughly examine all of your expenses, including both personal and business-related ones. This ensures that you can maximize all eligible deductions.
• Set up a retirement plan: Setting up a retirement plan for your LLC can result in great tax savings. Consider setting up a SEP IRA or a Solo 401(k).
• Understand the different laws: Every state has different laws regarding taxes and deductions. Make sure you understand the regulations in your state so that you are not subject to any penalties for non-compliance.

FAQ

Do LLC members pay self-employment taxes?

LLC members do not typically have to pay self-employment tax if they are classified as “members” rather than “employees.”

This is because LLCs are considered pass-through entities for federal tax purposes, meaning income and losses are passed through to the members and taxed at the individual level.

LLC members can opt to be taxed as C corporations, in which case they may be subject to corporate taxes and thus have to pay self-employment taxes.

Do LLCs pay state taxes?

LLCs are subject to state income tax, just like any other business. Depending on the state, LLCs may have to pay corporate income tax, franchise tax, sales and use tax, or other separate LLC tax.

LLCs generally need to register with their state and local government agencies, which may incur extra fees.

Do LLCs owe payroll taxes?

Yes, LLCs are required to pay payroll taxes if they have employees. These taxes consist of federal income tax withholding, Social Security and Medicare taxes (commonly referred to as FICA taxes), and federal unemployment tax (FUTA).

LLCs are responsible for both the employer and employee portion of payroll taxes and must remit them to the appropriate tax agencies.

How does an LLC affect personal taxes?

LLCs provide their members with flexible taxation options, which can impact their personal taxes differently. LLCs may opt to be taxed as either a sole proprietor, partnership, or corporation for federal income tax purposes, each of which has different rules regarding how and when taxes are paid.

LLC members do not generally pay federal income tax on company profits since they are usually subject to “pass-through taxation.” This means that the profits of an LLC will pass through to its members, who then report the income on their personal tax returns.

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This article, "LLC Taxes: Everything You Need to Know" was first published on Small Business Trends

In this guide, we’ll explain everything you need to know about startup cost deduction and how to take advantage of it in the future.

What is the startup cost deduction?

The startup cost deduction is a tax provision that allows entrepreneurs and small business owners to deduct a portion of their startup expenses from their taxable income in the year they begin conducting business.

The deduction is intended to help offset the costs involved with starting a business, which can include expenses such as market research, legal fees, incorporation fees, and advertising costs.

To qualify for the startup cost deduction, the business must be a new business, the expenses must be incurred before the business begins operations, and the expenses must be necessary and ordinary for the type of business being started.

The amount of the startup cost deduction is limited to $5,000 for the first year of business, with any remaining startup costs being amortized over a 15-year period.

However, businesses whose startup costs exceed $50,000 in total face a reduced limit on their deduction.

The best way to get you going in the right direction is to have a business startup checklist. The list can include anything from getting financing to finding legal help and even knowing tax terms. A thorough checklist can keep you from making rash decisions.

Who can benefit from the startup costs deduction?

New businesses that have incurred startup costs can benefit from the startup cost deduction. This includes entrepreneurs who have recently started a business, as well as those who are in the process of starting one.

The deduction is available to businesses of all types and sizes, including sole proprietorships, partnerships, and corporations.

What business startup costs are deductible?

When starting a business, it’s essential to understand what costs are deductible. Deductible startup costs and deductible organizational costs are two categories that can help new business owners save on taxes.

Understanding which expenses fit into these categories can greatly impact a business’s financial success.

Deductible Startup Costs

When starting a new business, there are many costs that need to be considered. Fortunately, some of these costs may be tax-deductible, helping new business owners save money on their taxes.

These deductible business startup expenses include costs that are necessary when starting or buying an active trade or business, such as:

• Research and development expenses may include costs incurred related to the creation and testing of prototypes, the development of new technologies, labor supply, or the refinement of existing products or services.
• Market research expenses may include costs paid related to surveys, focus groups, or other research methods to understand potential customers’ needs and preferences.
• Advertising and promotion expenses can encompass costs associated with the development and distribution of marketing materials, including brochures, flyers, and advertisements.
• Employee training costs may include expenses related to onboarding new employees, such as training materials, instructor fees, and travel expenses.
• Equipment and supplies costs may include expenses related to purchasing or leasing equipment and supplies necessary to operate the business.
• Professional fees, such as legal and accounting fees, may be incurred to help with business registration, tax preparation, and other legal or financial matters.
• Rent and utilities during the startup phase such as rent for office or retail space, as well as utilities such as electricity, water, and internet service.

Deductible Organizational Costs

Deductible organizational costs are expenses that arise during the establishment of a corporation or partnership. These costs encompass:

• Legal and accounting fees associated with incorporation or partnership formation can encompass costs for preparing legal documents, including articles of incorporation and partnership agreements, along with any consulting fees from accountants or lawyers.
• State fees for incorporating or registering the business may include expenses such as filing fees or franchise taxes required to register the business with the state.
• Organizational meeting costs may include expenses related to the initial meetings of the corporation or partnership, such as travel and lodging expenses for shareholders or partners.
• Fees for obtaining licenses and permits can encompass the costs associated with acquiring the essential permits and licenses needed to operate the business.
• Costs associated with transferring assets to the new business may also be tax-deductible. These costs may include expenses related to transferring assets such as real estate, inventory, or intellectual property to the new business.

What startup business expenses are not deductible?

While there are many startup costs that are deductible, not all expenses qualify. Some costs, such as personal expenses or those incurred before the business is operational, cannot be deducted. Here are examples of startup costs that are not deductible:

• Personal expenses
• Capital expenses
• Research and experimentation costs before the business begins operations
• Expenses for acquiring intangible assets like patents and copyrights
• Costs related to acquiring an existing business
• Expenses related to issuing stock or other securities
• Fines and penalties
• Expenses for lobbying or political activities
• Costs related to tax-exempt income or other tax-exempt entities
• Expenses for creating or administering a pension plan or trust
• Costs related to issuing tax-exempt securities or financing through tax-exempt bonds

When can you take the startup costs deduction?

You can claim the startup costs deduction in the year your business starts. This deduction applies to expenses related to the creation or exploration of a new business, including costs for market research and advertising.

The maximum amount of startup costs that can be deducted in the first year is $5,000, with any remaining balance being amortized over a period of 15 years.

It’s important to keep accurate records and consult with a tax professional to ensure you are taking advantage of all available tax deductions.

How do you calculate startup costs for a small business?

Calculating startup costs for a small business involves identifying all expenses necessary to get the business up and running.

These expenses may encompass a variety of items, ranging from market research and legal fees to equipment and supplies.

To calculate the total startup costs, list each expense and its associated cost and add them together.

It’s important to be thorough in identifying all necessary expenses, as underestimating startup costs can lead to financial strain later on.

A solid understanding of startup costs is critical for creating a viable business plan and securing the necessary funding for a successful launch.

How do you claim the startup costs deduction?

Claiming the startup costs deduction can help reduce the tax burden for new businesses. To take advantage of this deduction, there are specific steps that must be followed when filing an IRS tax return. Here are the steps to claim the startup costs deduction:

1. Determine if your business is eligible: To claim the startup costs deduction, your business must have started within the current tax year and incurred expenses related to starting up the business.
2. Calculate your startup costs: The startup costs include any expenses incurred in preparing to operate the business, such as legal and accounting fees, market research, and advertising costs.
3. Choose between deduction or amortization: You have the option of either deducting startup costs up to $5,000 in the first year or amortizing the expenses over a period of time, generally 15 years.
4. File the appropriate tax form: Based on your business entity type, you must submit either Form 1120, 1120-S, 1065, or 1040. Filing the correct form is essential for claiming the startup costs deduction.
5. Include the deduction on your tax return: After calculating the amount of the deduction or amortization, make sure to record it on the correct line of your tax return. This step is crucial to maximize the tax benefit from the startup costs deduction.

How much can be claimed with the startup costs deduction?

The amount that can be claimed with the startup costs deduction is limited to $5,000 in the first year of business. If your total startup costs exceed $50,000, the deduction will be reduced by the excess amount. Any remaining expenses not deducted in the first year can be amortized and claimed over a period of 180 months.

Can an LLC deduct startup costs?

Yes, an LLC can deduct startup costs on its tax return. However, the deduction is subject to certain limitations and eligibility requirements. The IRS considers startup costs as capital expenses that are necessary to get the business up and running.

It’s important to consult with a tax professional to ensure you are accurately reporting all eligible expenses and taking advantage of all available deductions.

Can a sole proprietor deduct startup costs?

Yes, a sole proprietor can deduct startup costs on their tax return, subject to certain limits and requirements. The startup costs must be ordinary and necessary expenses incurred in the course of starting the business and cannot exceed $5,000 in the first year, with any remaining costs spread out over 15 years.

Can an independent contractor deduct startup costs?

Yes, independent contractors may be able to deduct startup costs associated with their business, such as equipment purchases and marketing expenses, on their tax returns. Just like for LLCs and sole proprietors, the deduction is limited to $5,000 in the first year of business and any remaining costs can be spread out.

Can you deduct startup costs with no income?

If a business owner has no income during the year in which they incur startup costs, they may still be able to deduct these costs on their tax return. The deduction may be limited in the first year and carried forward to future years.

Can you depreciate startup costs?

Some startup costs, such as equipment purchases or property improvements, may be depreciated over time on a business owner’s tax return. As mentioned previously, the ability to depreciate startup costs on a business owner’s tax return may be limited by certain eligibility requirements established by the IRS.

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This article, "Your Guide to the Startup Costs Deduction" was first published on Small Business Trends

Getting a tax extension is easy and straightforward and can provide you with extra time to get your taxes done correctly. There are many tax extension myths, but here is the tax extension information you really need to know.

This article, "How to Get a Tax Extension" was first published on Small Business Trends

Keeping up with estimated taxes throughout the year will help you avoid paying too much (or too little) come tax day. In this article, we’ll discuss when estimated taxes are due as well as how much you’re required to pay.

Estimated tax payments are regular payments that individuals or businesses make to the government throughout the year to cover their anticipated tax liability.

These payments are typically made quarterly in four equal installments and are estimated based on an individual’s or business’s expected income not subject to federal tax withholding minus deductions for the current year.

Estimated tax payments are used to ensure that the tax owed is paid in a timely manner rather than as a lump sum at the end of the year, avoiding underpayment penalties.

Who should make quarterly estimated tax payments?

The Internal Revenue Service mandates that specific taxpayers make estimated tax payments on a quarterly basis to guarantee they contribute their fair share of taxes throughout the year. Below are the various categories of taxpayers obligated to pay estimated taxes:

• Self-Employed Individuals: If you are self-employed or run a sole proprietorship, you are required to make estimated tax payments if you expect to owe $1,000 or more in taxes for the year.
• Small Business Owners: Owners of small businesses, including S corporations, partnerships, and limited liability companies (LLCs), are required to make estimated tax payments if they expect to owe $1,000 or more in taxes for the year.
• Investors: Investors earning income from dividends, rental properties, capital gains, and other sources are required to make estimated tax payments if they anticipate owing $1,000 or more in taxes for the year.
• High-Income Taxpayers: Individuals with high incomes, such as those earning salaries, bonuses, and other taxable income, may need to make estimated tax payments to both state and federal authorities if they anticipate owing $1,000 or more in taxes for the year.

When are estimated tax payments not required?

Many businesses must make estimated quarterly tax payments during the year. However, there are specific situations in which estimated tax payments are not required. These situations include if a business:

• is expected to owe $1,000 or less for the year in taxes
• has zero income for a particular quarter
• was not operational for the full taxable year
• filed and paid their taxes on time for the previous year

How do you calculate estimated tax payments?

It’s important to calculate your estimated tax payments accurately to avoid underpayment penalties and interest charges from the IRS. There are two methods for calculating estimated tax payments: the annualized income installment method and the prior year safe harbor method.

The Safe Harbor Method

The safe harbor method provides a straightforward approach to calculating estimated tax payments and can help prevent penalties for underpayment. To utilize this method, take the lesser of either 90% of the current year’s total tax liability or 100% of the total tax liability from the previous year. Additionally, remember to include any credits claimed during the taxable period when calculating estimated tax payments.

The Annualized Income Installment Method

The annualized income installment method is more complicated than the safe harbor option but allows taxpayers to better account for any changes in income during their taxable period. With this approach, make four separate calculations at equal intervals during your taxable period. These calculations should include all sources of taxed income, credits awarded, and deductions made during each portion of your taxable period to accurately determine what amount needs to be paid for that quarter.

What are the quarterly tax dates?

Paying taxes can be a tricky process, especially when dealing with quarterly estimated tax payments. There are four different deadlines for estimated taxes throughout the calendar. Knowing these deadlines will help ensure that you pay your taxes on time and avoid any potential penalties. Here is an overview of the quarterly estimated tax payment deadlines:

• First estimated tax payment due
• Second quarter estimated tax payment due
• Third quarter estimated tax payment due
• Fourth quarter estimated tax payment due

How do you make an estimated tax payment?

Making estimated tax payments is a crucial step in avoiding underpayment penalties and interest charges from the IRS. Here are the steps to make an estimated tax payment:

Determine your estimated tax liability

The initial step in making estimated tax payments is to assess your anticipated tax liability for the year. You can calculate your estimated tax payments using one of two methods: the annualized income installment method or the prior year safe harbor method, to establish your estimated tax liability.

Choose a payment method

Once you have determined your estimated tax liability, you need to choose a payment method to make your estimated tax payment. You can make estimated tax payments online, by mail, or through a bank or financial institution.

Make your payment

After choosing your payment method, you can make your estimated tax payment. Be sure to include your business name, Employer Identification Number (EIN), and the tax year and quarter for which you are making the payment. If you are making a payment for a sole proprietorship, be sure to include your name and Social Security Number instead of a business name and EIN.

Keep a record of your payment

It’s important to keep a record of your estimated tax payment, including the date, amount, and method of payment, to ensure that you have proof of payment in case of any issues or questions from the IRS.

What happens if a business doesn’t make estimated tax payments?

If a business neglects to make estimated tax payments, the IRS may impose penalties for underpayment and charge interest on the outstanding amount. The longer the income tax goes unpaid, the greater the estimated tax penalty and the interest that will accumulate. This situation can lead to additional consequences such as tax liens, wage garnishments, bank levies, and asset seizures. To prevent these issues, it is crucial to ensure that estimated tax payments are made accurately and on time, ideally with the assistance of a tax professional.

Do you have to pay estimated taxes quarterly?

Estimate taxes are generally due on a quarterly basis. This means that estimated taxes must be paid four times each year – on the 15th of the fourth month (for Q1), the 17th of the sixth month (for Q2), the 16th of the ninth month (for Q3), and the 15th of the first month of the following year (for Q4). Taxpayers may also choose to make advance payments in order to reduce their tax burden at the end of the year.

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This article, "Estimated Tax Payments: What to Pay and When" was first published on Small Business Trends

The First Step: Gather Filing Information from the Previous Year

Whether you’re going to file your own taxes 0r use tax preparation services, your first step before you prepare and file a tax return is to make life easier and gather all the pertinent filing information from the past year. That may include:

• A W2 form
• A 1099, or multiple 1099s, and documentation of expenses. A basic thing to know as a side business taxes guide is that you’ll get a 1099 from all who paid you $600 or more during the year.
• For self-employed people (who run a business and don’t receive 1099s), you’ll need documents about your revenue and expenses.

When Can You Start Filing Taxes for the Year?

It’s tax season again. If you were filing online, you may have already begun. You can kick off your tax preparation required by the IRS by entering all the necessary information. If you’ve changed your address or filing status, updating that information is a quick and efficient first step to streamline the process.

Do you anticipate a refund? The quicker you file, the sooner that refund will arrive.

Decide How to File Your Federal Income Tax Return

Filing IRS federal taxes can be simple or complicated. You may be able to file for free online. Which type is your tax return?

If you are self-employed and wondering how to file self-employment taxes, tax filing gets a bit more complicated. You can still file taxes on your own, but you’ll appreciate the guidance of either a professional preparer or the best tax software as you prepare your federal return.

Here are a few tips from ClearValue Tax about how to safely and easily maximize your tax refund:

The Best Options for Filing Tax Returns

Solo? Software? Tax preparer? Free file? Here is more detailed information about the best options for filing tax returns:

Tax Software

Tax preparation software can make it easier to file your federal tax return. Additionally, the information you gather for your federal return can also be utilized for filing your state and local tax returns.

As you use tax return software to do your own tax return, you’ll be prompted to add information that may garner tax breaks. You may find tax deductions that you didn’t know you had (see below).

Take a look at TurboTax/Intuit, H & R Block, TaxAct and TaxSlayer as tax filing software for the self-employed.

Hire a Tax Preparer

Hiring a tax professional is an excellent choice, particularly if you are new to handling your own taxes due to a recent business venture. A tax expert provides assistance with tax preparation and can offer advice on strategies to help you save money in the future.

IRS Forms Online

All the forms required for federal tax filing can be accessed through the IRS. For state and local taxes, you will need different forms. You can download and print these forms to use as worksheets before utilizing IRS Free File, or you can fill them out directly using the IRS fillable forms.

Free File

You can file an IRS-free file federal tax return. Well, the IRS free file option part is free – of course, you may still need to pay what you owe on your tax return! You can pay what you owe using a credit card, linking to your bank account or setting up a payment plan (if you can’t immediately pay all you owe.) You can receive a refund by linking to your bank account.

Here’s a table that lists the best options for filing your tax returns, along with their pros and cons.

Each option has its advantages and disadvantages, so choosing the best approach depends on your comfort level with tax filing, the complexity of your tax situation, and budget considerations. Consider the features and benefits of each option to find the one that suits your needs and ensures a smooth and accurate tax filing experience.

Determine What Tax Bracket You Fall Into

There are 7 tax brackets that determine your tax rate. The tax rate ranges from 10% to 37%.

Your taxable income is calculated using the total of your earned and investment income and then adjusting that figure based on deductions. Read more about deductions below.

Get Your Tax Documents Together

Trust us – it’s important to gather all your tax documents before you begin. You might already have everything you require, such as your QuickBooks files or similar software. Alternatively, your documents may be stored in a less formal place, like the Big Drawer. Either way, let’s get started:

Tax Deductions

The total amount of your tax deductions will influence your choice between itemizing on your income tax return and opting for the standard deduction. The standard deduction varies by filing status, so you’ll need to calculate your total deductions to determine which option you qualify for.

Let’s take a look at the following possible tax deductions you may be eligible for:

• State and Local Income Taxes: The money you’ve paid on your state and local income tax burden can be deducted from your federal income tax return.
• Real Estate and Personal Property Taxes: The money you’ve paid for these taxes can also be deducted as you file your federal taxes.
• Home Mortgage Interest: Depending on your mortgage rate, the amount of interest you pay may be significant.
• Gifts to Charity: Charitable donations can also be deducted. You’ll need receipts, plus documentation that proves the entity that receives your gift is a charitable organization.
• Medical and Dental Expenses: This includes the cost of premiums you’ve paid. If you’re on the Healthcare.gov insurance (and receive a discounted policy), this doesn’t include the total premium amount for the policy, but it does include the portion of the premium that you pay. Other medical and dental expenses may be covered, but only if the cost exceeds 7.5% of your Adjusted Gross Income.
• Student Loan Interest: The amount of interest you’ve paid on a student loan may also be deducted, even if you’re no longer a full-time student.

How to Pay Your Taxes

Now that you know how to file taxes online, you can also ensure that your taxes are paid on time. The best way to do that is to pay as you file – you’ll be hit with interest charges for past-due amounts on your account.

Bank Account

When you file a tax return, you can pay from a checking or savings account.

Card

You can pay with a personal or business credit card.

Payment Plan

Taxpayers can set up scheduled payments. You can set up the process for free online, using the IRS free file website.

If you require additional time, you can file for an extension at no cost. It is important to submit your extension request by the tax due date. Filing for an extension only requires minimal information. You will need to provide estimates and utilize IRS Form 4868, which is available for free download and use.

How to File an Amended Tax Return

Taxpayers can make mistakes when they file taxes. You may have left out a deduction, for example. Or if you’re self-employed, you may get a 1099 late and want to add that to your return.

You’ll need to file an Amended Tax Return using IRS form 1040X.

How to File Back Taxes

If you find yourself in a situation where you owe back taxes, it’s essential to take the appropriate steps to address the issue. If you don’t, you can be looking at lots of accrued interest or even penalties.

The best course of action is to work directly with the IRS to resolve the outstanding tax debt. To begin the process, you’ll need to set up an account using irs.gov, which allows you to access the necessary tools and resources for managing your back taxes.

Setting up an account with the IRS is a straightforward process, typically done online through their official website. Once you have your account established, you can explore the available payment options to determine the best plan for your financial situation. The IRS offers various payment plans, allowing you to spread out the payments over a period that suits your budget.

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This article, "How to File Taxes for For Your Small Business" was first published on Small Business Trends

What are Tax Preparation Services?

Tax preparation service companies are a place to go for help with filing your tax return. A tax professional can help with tax forms, calculate your adjusted gross income, and let you know what deductions and credits you are eligible for, making your experience quicker and much less confusing.

Choosing the Best Tax Preparation Services: Our Methodology

Choosing the right tax preparation service is crucial for small business owners and entrepreneurs, as it can significantly impact their financial health and compliance. Here’s our methodology for assessing tax preparation services, using a scale of 1 to 5, with 5 being the most important:

1. Accuracy and Compliance (5/5):
   • Track record of accurate and compliant filings
   • Knowledge of current tax laws and regulations
   • Guarantees or assurances against filing errors
2. Cost and Value (4/5):
   • Transparent pricing without hidden fees
   • Competitive rates for the level of service provided
   • Value for money considering the services offered
3. Range of Services (4/5):
   • Comprehensive service offerings (e.g., federal, state, local, and international taxes)
   • Additional services like tax planning and financial advice
   • Specialization in relevant industries or tax situations
4. Ease of Use and Accessibility (4/5):
   • User-friendly interface for digital services
   • Availability of in-person assistance where necessary
   • Accessibility for people with disabilities
5. Security and Privacy (5/5):
   • Robust measures to protect sensitive financial data
   • Compliance with privacy regulations and best practices
   • Clear and trustworthy privacy policies
6. Customer Support (4/5):
   • Availability and responsiveness of customer support
   • Quality and helpfulness of tax professionals
   • Support options (phone, email, live chat, in-person)
7. Technology and Tools (3/5):
   • Utilization of up-to-date software and technology
   • Availability of tools for easy document upload and management
   • Integration capabilities with accounting software
8. Reputation and Reliability (4/5):
   • Positive reviews and testimonials from clients
   • History of reliability and trustworthiness in the industry
   • Professional accreditations and certifications
9. Turnaround Time (3/5):
   • Efficiency in completing and filing tax returns
   • Timely updates and communication throughout the process
   • Ability to handle urgent or last-minute filings
10. Educational Resources (3/5):
    • Provision of resources to help clients understand their taxes
    • Availability of workshops, webinars, or informational content
    • Guidance on tax-saving strategies and financial planning

By carefully assessing each tax preparation service based on these criteria, we strive to offer small business owners dependable and efficient choices that can manage their tax requirements with accuracy and attention.

Where is the Best Place to Get Your Taxes Done?

Whether you want to do your own taxes or would like to get the help of tax professionals, there are some really great options. At the top of our list is H&R Block, which has great prices, easy-to-use online services, and a plethora of locations that easily make it the best overall.

Jackson Hewitt’s services are the easiest to use and offer lots of tools to make filing a breeze. If you would like to do your taxes online from the comfort of your own home, then Turbo Tax Live is a fantastic option to get your taxes done right.

Last but not least is Ey TaxChat, an online tax preparation service that is especially good for the self-employed tax filer. We will learn more about these options and a few others in the following sections.

The 8 Best Tax Preparation Services

We have compiled a list of the 8 Best Tax Preparation Services and online tax software that offer comprehensive assistance with filing your taxes. These services provide reliable support from an experienced tax pro who will help small business owners and individuals insure that their return is accurate and up-to-date with all deductions and credits available.

H&R Block– Best Overall

Heading our list for best overall tax service is H&R Block. H&R Block was started in 1955 by two brothers and has grown to over 12,000 locations worldwide. It has multiple services to choose from, the best tax software, and competitive prices that will take care of all your individual or business income tax preparation needs.

H&R Block Pros

• Affordable pricing starting under $100
• Maximum refund guarantee
• Thousands of locations to provide accessible services
• Various tax services are available
• Offers free tax advice to filers using online services
• Offers a free file option for simple tax returns

H&R Block Cons

• A certified public accountant may not be available to help you
• More complex filings come with higher prices

H&R Block Pricing

H&R Block offers transparent pricing. A tax professional will walk you through all the forms you will need, provide free tax advice, and advise you of any fees so that you know how much you will be spending before you even begin.

Jackson Hewitt– Ease of use

Jackson Hewitt is a tax preparation service that is known for being one of the easiest services to use. This reputable service was started in 1982 and now has over 6,000 locations across the US. They offer a variety of different tax filing and preparation services for both individuals and businesses.

Jackson Hewitt Pros

• Better Business Bureau accredited with an A+ rating
• Various options, such as dropping off your paperwork or uploading it online
• Walk-in preparations available
• Thousands of Jackson Hewitt office locations, including some located inside Walmart
• Early Refund Advance Loan available

Jackson Hewitt Cons

• Does not offer a free filing option
• Not all tax professionals are CPAs

Jackson Hewitt Pricing

Jackson Hewitt’s pricing is not clear and easy to find on their website.

Turbo Tax Live– Overall Best Online Experience

Turbo Tax Live is a top tax preparation service that offers an easy and convenient online filing experience. It was launched in 1993 by Intuit and has been rated as the best online tax service on multiple occasions. It is one of the best tax software for small business owners.

Turbo Tax Live Pros

• Accredited by the Better Business Bureau with an A- rating
• Allows you to file your taxes online or using a mobile app for an easy and accessible experience
• In-depth question and answer guidance available 24/7 with real accountants
• Instant refund estimates

Turbo Tax Live Cons

• If you are self-employed and are filing with one or more states, it can become pricy. Turbo Tax Live is probably not the best tax software for small business filers.
• You are unable to go into a physical location and speak with someone in person.

EY TaxChat-Best for Self-Employed

EY TaxChat is a top tax preparation service that is completed via your computer or phone and is the best for freelance income filers and small business owners. It was launched in 1986 by Ernst and Young and has a great reputation for high-quality tax services.

EY TaxChat Pros

• Ability to speak with a tax preparer who will be able to help you understand the meaning of standard deduction, explain things on your state tax websites that are not so clear, or help you file your side business taxes.
• Easily send documents using your computer or electronic devices
• Get paired with a professional who will be able to help you with your specific tax needs

EY TaxChat Cons

• It can be pricier than other competitors
• No option to speak with someone face-to-face

EY TaxChat Pricing

Pricing for EY TaxChat begins at $199 and will vary depending on each individual’s needs.

Cash App Taxes

Cash App Taxes is a top tax preparation service that offers a fast and easy way to get your taxes done. This app was originally Credit Karma, and Cash App bought out the tax service, which is now Cash App Taxes. It is a fast and easy way to get your taxes filed online.

Cash App Taxes Pros

• File online via your mobile device
• A free base price and state tax filing fee
• Get your refund two days earlier by having your refund deposited directly into your Cash App account.
• Offers a guarantee to get you the maximum refund possible

Cash App Taxes Cons

• Not all states are able to file through Cash App Taxes
• This is not the best choice for those who have more complex tax needs

Cash App Taxes Pricing

Cash App Taxes are always free, no matter what your situation.

TaxSlayer

TaxSlayer originated in Agusta, Georgia in 1965 as Rhodes-Murphy & Co. It started as a tax preparation service and has changed a couple of times over the years. It is now an affordable software for the average everyday tax filer.

TaxSlayer Pros

• Free federal tax filing for all active duty military with no restrictions
• Affordable filing options for your individual needs
• Simply Free is a 100% free option for filers with simple tax situations. With this option, federal tax filing is free, as well as the first state filing.

TaxSlayer Cons

• No early refund loan services
• It is not good for individuals who want free tax services with high-income

TaxSlayer Pricing

TaxSlayer offers four pricing tiers for different tax needs.

Liberty Tax

Liberty Tax is a tax preparation service that was established in Virginia Beach, Virginia, in 1997, catering to both individuals and small businesses. With more than 2,500 branches across the US and Canada, the company has earned numerous accolades over the years for its outstanding service.

Liberty Tax Pros

• App available for remote filing
• Do your own taxes online and utilize the virtual customer support team
• Brick-and-mortar locations available for more personal filing experience

LibertyTax Cons

• No free filing option for simple tax returns
• Does not offer 24 hr support

Liberty Tax Pricing

TaxAct

In 1998 TaxAct was founded and has helped many individuals and businesses file their own taxes digitally, regardless of their tax situation. This online software is also equipped with many tools to make filing easy for any tax filer.

TaxAct Pros

• Downloadable app to file taxes via mobile devices
• Free advice available from a live tax expert
• Access to free tools that make filing your taxes easier

TaxAct Cons

• No physical location
• Possibility of technical problems occurring with the software

TaxAct Pricing

Tax Software

Tax software designed for small businesses streamlines the often intricate process of preparing and filing income tax returns. Here’s a deeper look into the world of tax software:

• Types of Tax Software:
  • Form-Based Software: This type primarily focuses on providing digital versions of tax forms. Users input their data directly into these forms, which often replicate the appearance and structure of the paper counterparts.
  • Interview-Based Software: Instead of directly filling out forms, users answer a series of questions. Based on these answers, the software determines which forms to use and automatically populates them.
• Key Features:
  • E-filing Services: Allows users to electronically submit their tax returns, ensuring quicker processing times and receipt confirmations.
  • Document Storage: Stores important tax-related documents, like W-2s or 1099s, in a digital format, which can be beneficial for record-keeping and future reference.
  • Credit and Deduction Suggestions: The software analyzes user data to recommend tax credits and deductions that the taxpayer may be eligible for, ensuring they get the maximum refund possible.
  • Audit Protection: Certain software includes features that help reduce the likelihood of an audit or provide assistance if an audit takes place.
  • Multi-state Filing: For businesses that operate in multiple states, some software provides the ability to file in different states effortlessly.
• Benefits for Small Businesses:
  • Cost-Effective: Using tax software can be significantly cheaper than hiring a tax professional, especially for businesses with straightforward finances.
  • Time-Saving: Automated calculations and form population reduce the time spent on manual data entry.
  • Accuracy: The likelihood of errors is reduced since the software automatically conducts calculations and identifies common mistakes.
  • Year-Round Access: Most platforms offer access throughout the year, allowing businesses to input data, track expenses, and adjust financial strategies as needed.
• Considerations:
  • Complexity: While software can handle a variety of tax situations, businesses with particularly intricate finances might still benefit from consulting a tax professional.
  • Updates: As tax laws and regulations change, it’s essential to ensure that the software is regularly updated to remain compliant.

Maximizing Tax Benefits: Tips for Small Businesses

In the intricate landscape of small business taxation, unlocking the full potential of tax benefits can significantly bolster financial health and growth. Navigating this realm requires a blend of strategic planning and astute awareness of the tax advantages available.

Here are some essential tips for small businesses aiming to maximize their tax benefits:

• Stay Informed on Tax Deductions: Regularly updating your knowledge about the ever-evolving tax deductions is critical. This includes understanding deductions related to home office expenses, business travel, and equipment purchases. Leveraging these deductions can substantially lower your taxable income.
• Consider Retirement Plans: Investing in retirement plans like SEP IRAs or Solo 401(k)s not only secures future financial stability but also offers immediate tax benefits. Contributions to these plans are typically tax-deductible, reducing your current taxable income.
• Utilize Tax Credits: Tax credits are a powerful tool as they directly reduce your tax bill. Credits may be available for certain business activities like hiring new employees, implementing environmentally friendly practices, or research and development efforts. Staying informed about these opportunities can lead to significant savings.
• Implement Effective Accounting Strategies: Reliable and efficient accounting practices form the basis for optimizing tax benefits. This involves careful record-keeping, which streamlines the process of claiming deductions and credits while ensuring adherence to tax laws.
• Seek Professional Advice: Given the complexity of tax laws, it is often essential to seek professional guidance. Working with an experienced tax advisor can help identify hidden opportunities for tax savings that are specifically suited to your business situation.
• Leverage Tax Software: For businesses handling taxes internally, utilizing advanced tax software can simplify the process and ensure accuracy. These tools often come equipped with features that highlight potential deductions and credits.
• Plan for Tax Payments: Effective tax planning requires allocating funds for tax payments during the year. This proactive strategy helps avoid cash flow problems and reduces the risk of penalties related to late or inadequate tax payments.
• Understand Industry-Specific Benefits: Different industries often have unique tax incentives. Understanding and leveraging these industry-specific benefits can lead to considerable tax savings.

Is it Worth Going to a Tax Preparer?

Tax season can be quite a headache, and many people wonder if it’s worth going to a tax preparer for help. The answer is yes! It may cost more money to hire someone for professional tax assistance, but the time and effort saved in the long run can be well worth it.

A tax preparer typically has extensive knowledge of the tax code and tax deductions, such as self-employed taxes, which they can use to maximize your return or minimize what you owe if you are facing an audit. Tax preparers also have access to the latest software updates that make tax filing quicker and easier, meaning less stress for you during this busy time.

So if you’re feeling overwhelmed with managing your finances during tax season, a professional tax preparer could be just the thing to help make things simpler.

Who Should Use a Tax Preparation Service?

Any small business owner or self-employed individual who needs help filing their taxes should consider using a tax preparation service. These services can help with everything from calculating and claiming tax deductions to filing your taxes on time. They also offer expert advice and guidance that can help you minimize your tax liability and maximize your refund. Here’s a more detailed overview to help you decide whether a tax preparation service is right for you:

• Small Business Owners:
  • Manage complex financial transactions.
  • Need to navigate various tax laws specific to businesses.
  • Can benefit from identifying potential deductions related to business expenses.
• Self-Employed Individuals:
  • Handle fluctuating income levels.
  • Need to consider self-employment taxes.
  • Can take advantage of specific deductions like home office or business mileage.
• Individuals Needing Assistance with Calculations:
  • Want assurance in accurate tax computations.
  • Require help with calculating deductions and credits.
  • Seek to avoid potential errors that can lead to penalties.
• Those Seeking Timely Filing:
  • Want to ensure taxes are filed before the deadline.
  • Seek help in organizing and managing necessary tax documents.
  • Wish to avoid late-filing penalties.
• Taxpayers Wanting Expert Advice:
  • Aim to understand the nuances of tax laws.
  • Seek guidance on minimizing tax liability.
  • Want to maximize potential refunds.
• Individuals with Complex Financial Situations:
  • Have multiple sources of income, including investments or rental properties.
  • Have undergone major life changes like marriage, divorce, or the birth of a child.
  • Need to navigate inheritance or estate taxes.

What is the best free tax software?

If you are looking for free tax help and free filing for simple tax returns, then H&R Block’s free version is the best choice for you. You will not only be able to file your taxes quickly and easily online but will also have access to online tax help, which is completely free.

Which online tax service gives the biggest refund?

Turbo Tax and H&R Block come pretty close when it comes to which online service gives the biggest tax refund. This is mostly because they are both used by a lot of small business owners who can claim many different deductions on their taxes. Often, they will be owed money due to overpayment of taxes as well, which also pads their expected refund. Finally, both services provide a maximum refund guarantee for their services.

How much does it cost to have someone else prepare your taxes?

The cost of having someone else prepare your taxes can vary from $100 and up. Usually, it starts with how they price their services and whether they charge a flat rate or charge for individual items. Additionally, factors including your location, the complexity of your taxes, and software costs will also influence how much you will pay. More complex tax situations come with a higher price tag.

How Is a Tax Preparation Service Different From Tax Preparation Software?

While tax preparation software can assist you in filing your taxes, it cannot match the expertise and guidance provided by a professional tax preparation service. Tax services employ tax professionals with extensive experience in all facets of tax filing, equipping them with the knowledge and resources necessary to maximize your tax return.

Tax services typically offer additional services like document storage and e-filing that are not available with tax preparation software. The decision to use a tax preparation service or software comes down to your needs and preferences as a taxpayer.

How long does it take for a tax preparer to do your taxes?

The time it takes for a tax preparer to complete your taxes will depend on a number of factors, including the complexity of your return and the efficiency of the tax preparation service. A professional tax preparer may be able to complete and file your taxes in as little as a few hours, or it may take several days or weeks, depending on your needs and situation.

Truly, the best way to find out how long it will take for a tax preparer to do your taxes is to consult with a tax professional directly.

Should I hire a tax preparation service or use tax prep software to do it myself?

There is no right or wrong answer when it comes to whether you should use a tax preparation service or software. Both options offer benefits and drawbacks, and the right choice will depend on your personal situation, budget, and preferences.

Some factors to consider when deciding between a tax prep service and software include the level of expertise and support you need, the complexity of your taxes, and the cost. In the end, it all depends on your individual needs.

How much can a small business make before paying taxes in the US?

According to the IRS, small businesses in the US are typically required to pay taxes on any income earned above $400. Other factors that may impact your tax liabilities, such as expenses, deductions, and credits, may also affect the amount of taxes you owe.

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This article, "The Best Tax Preparation Services for your Business" was first published on Small Business Trends

Fortunately, you don’t have to study a stack of business finance books to manage your own taxes, thanks to a variety of affordable tax preparation software options. Unsure what is the best tax software for your small business? We’ve broken down all the details about the top tax software companies.

Our Methodology to Choose the BEST Tax Software

Choosing the right tax software is critical for individuals and businesses alike, as it greatly simplifies the process of preparing and filing taxes. Here’s a guide to the criteria for selecting the best tax software, with each rated on a scale of one to ten, with ten being reserved for the most important factors.

1. Ease of Use (Importance Scale: 10/10)
   • User-friendly interface and navigation.
   • Clear guidance and step-by-step instructions.
2. Accuracy and Compliance (Importance Scale: 10/10)
   • High accuracy in calculations.
   • Updated with the latest tax laws and compliance requirements.
3. Filing Options (Importance Scale: 9/10)
   • Support for different filing statuses and tax situations.
   • Options for both federal and state tax filing.
4. Help and Support (Importance Scale: 9/10)
   • Access to tax professionals or customer support for queries.
   • Availability of resources like FAQs, forums, or tutorials.
5. Cost-Effectiveness (Importance Scale: 8/10)
   • Competitive pricing with clear value for the features provided.
   • Free versions for basic tax filing needs.
6. Security (Importance Scale: 10/10)
   • Strong security measures to protect sensitive personal and financial information.
   • Data encryption and secure storage.
7. Import and Export Capabilities (Importance Scale: 7/10)
   • Ability to import data from previous years or other financial software.
   • Export options for saving and transferring data.
8. Audit Support (Importance Scale: 8/10)
   • Assistance in the event of an audit.
   • Audit defense services are available, either included or as an add-on.
9. Efficiency and Speed (Importance Scale: 7/10)
   • Fast processing and quick e-filing options.
   • Minimal delays in completing and submitting tax forms.
10. Multi-Platform Accessibility (Importance Scale: 6/10)
    • Accessibility on different devices, including mobile compatibility for on-the-go filing.

Choosing the right tax software is a decision that holds profound implications for your business’s financial health. A careful appraisal of each of these aspects in relation to your business requirements will steer your investment in the right direction.

Best Tax Software

To help each of our readers select the best tax software, we’ve highlighted 11 of the most popular tax software products available this year. Based on your own tax needs, it should be simple for you to evaluate the details and choose your best option for filing taxes online.

H&R Block

Touted by experts as one of the best tax software options, H&R Block’s online platform offers multiple ways to file taxes, including e-filing and assistance from a tax professional. H&R Block’s streamlined user interface is simple to navigate, and the software features comprehensive explanations of every tax form, as well as step-by-step guides to help users navigate their individual tax situations.

Many users filing simple returns will qualify for the H&R Block free filing option, which includes the ability to import the previous year’s tax return from another provider. Those with more complex tax returns can choose from four paid tax-filing software tiers that cover more tax forms and offer additional features.

While H&R Block is known for the tax expertise provided by its in-person professionals, online tax filers also can benefit from the additional oversight. H&R Block’s online users can opt for a Tax Pro Review, in which a tax professional will review a tax return after an online user has prepared it, checking for errors or omissions.

H&R Block Pros

Trusted brand, free version for simple returns, expert assistance available to ensure accuracy.

H&R Block Cons

More complex pricing tiers and fewer free options.

TurboTax

Tax preparation starts with properly filling out a W4 form, and the TurboTax online tax software offers help from the beginning with its free tax withholding calculator. Of course, TurboTax does so much more than that. This online tax software has been cited as the best option for users with investment income since it helps report the sales of investment securities and funds earnings, as well as other investment services. TurboTax users can even import investing gains and losses from a variety of sources.

TurboTax offers a variety of tax-filing products, but they are not the cheapest options available. The service is free only for individuals with the simplest tax returns, which excludes freelancers, small business owners, and other taxpayers who need to report details from a 1099 form. However, TurboTax does provide free access for active duty military personnel, as well as reserve and National Guard members.

Regardless of the cost, TurboTax is one of the most popular tax software tools in large part because of its ease of use. The program’s question-based interface leaves users feeling as though they’ve just met with an experienced tax professional who knows all the right questions to ask.

Turbotax Pros

Free withholding calculator, great options for investment income, and easy-to-use interface.

Turbotax Cons

A more expensive option, only free for simple returns and military members.

TaxSlayer

One of the more affordable tax software options, TaxSlayer is popular among freelancers thanks to its range of affordable products for self-employed taxpayers. In fact, TaxSlayer’s most expensive tier for self-employed users costs just $55, and it includes live chat assistance from a tax pro and estimated tax payment reminders. Independent contractors with simple returns can even enjoy a free filing option.

TaxSlayer might not be the first option people think of when they consider tax software programs, but the product is based on tools used by accountants for more than 50 years, and it’s been a trusted provider of online tax preparation since the 1990s. Not only does TaxSlayer feature a thorough outline for common 1040-related topics, but it also includes a searchable database of help files updated for the current tax year, as well as plenty of other guidance.

While TaxSlayer receives high marks from users, tax filers should note that only the highest-priced tier includes tax advice and assistance from a professional tax preparer. However, all versions provide free technical support through phone or email. Nonetheless, TaxSlayer remains a great option for freelancers and small business owners looking for budget-friendly solutions.

TaxSlayer Pros

Affordable pricing options, live chat assistance, and a searchable database of current tax topics.

TaxSlayer Cons

Professional tax assistance is only available to the top-pricing tier.

E-file

Looking for tax software offering discounts and promotional pricing? E-file users take advantage of special offers throughout the year, making it a great option for budget-conscious tax filers. Plus, the online tax software is so easy to use that those with simple tax returns can file electronically in less than 15 minutes.

E-file’s basic interface allows users to import their prior year’s tax return, and it features a sidebar with guidance, tips, and support. The software saves users’ progress as they prepare their tax returns, and they can opt to either file taxes electronically or print and mail their completed tax returns. Users also can access additional phone or email assistance for a fee.

The E-file tax software offers free federal tax filing for simple returns and low-cost filing options for more complex tax returns. Keep in mind, however, that the platform offers full tax filing and does not feature additional support from a tax pro. Regardless, E-file is a great option for tax filers with more complicated situations who don’t want to pay a higher premium.

E-file Pros

Year-round discounts and coupons, efficient and easy tax preparation, and low-cost complex tax returns.

E-file Cons

There is no professional assistance, and the included free filing is only for simple returns.

TaxAct

A useful software product for small business owners and self-employed tax filers, as well as any other taxpayer, TaxAct features a variety of tools to assist entrepreneurs, contractors, and users with multiple income streams. In addition to various pricing plans for tax situations of various complexity, TaxAct offers a calculator that helps users estimate their taxes before completing any official forms. Plus, TaxAct even guarantees a maximum refund of up to $100,000.

TaxAct’s pricing tier for self-employed filers includes forms for freelance income, including the 1099-NEC, farm, and business income, as well as depreciation calculations. The same plan also covers stocks, the sale of a home, and rental property income. Plus, TaxAct offers free federal and state returns for all active-duty service members through the TaxAct military landing page.

Customer assistance really sets TaxAct apart from its competition. The online tax software provides every user, regardless of pricing plan, free access to its Xpert Assist tax assistance through April 7, including a free professional review of returns before filing.

TaxAct Pros

Affordable tools for self-employed filers, maximum refund guaranteed, superior customer service, and free professional reviews.

TaxAct Cons

State returns cost more, and poor audit support.

Jackson Hewitt Online

Many taxpayers who need to file multiple state returns choose Jackson Hewitt Online as the best tax software because it offers unlimited state returns for a single flat fee. In fact, for just $25, Jackson Hewitt online users can file as many state and federal returns as they need.

Of course, Jackson Hewitt is known as a trusted provider of tax services thanks to the multitude of pop-up shops that appear in shopping centers and other popular locations during tax season. But the brand also represents a robust software product that helps users file their taxes online from the comfort of their own homes.

Choosing to file taxes using Jackson Hewitt’s software doesn’t mean tax filers are on their own, however. The products feature comprehensive assistance from a virtual tax pro, as well as IRS audit assistance and in-person customer service.

Jackson Hewitt Online Pros

Trusted tax professionals to ensure accuracy, unlimited returns for one flat fee, and virtual tax assistance.

Jackson Hewitt Online Cons

Refund advances only for in-store customers, and promotes pricier products.

Liberty Tax

Looking for an alternative online tax preparation software product from a respected brick-and-mortar tax service? Liberty Tax software is a great option for taxpayers who trust the brand but want to save some money by filing their own taxes online. While it’s not as inexpensive as Jackson Hewitt’s online tax software, Liberty Tax features a useful review tool, and its mobile app lets users complete simple reviews on their smartphones.

Liberty Tax users appreciate the website’s quick loading speeds, as well as its simple and clean interface. Liberty Tax’s online software lacks, however, the state-of-the-art interface offered by TurboTax and other competitors. It also lacks much of their guidance, which could hinder taxpayers from entering the various income, credits, and tax deductions they might need.

The Liberty Tax product enables users to swiftly and easily import tax documents, providing a straightforward tax preparation experience. Taxpayers also have the option to file remotely by uploading copies of their documents and allowing a professional to handle the rest. Although the advice from tax professionals is somewhat limited, some expert assistance is still available.

Liberty Tax Pros

Useful review tool, mobile optimized, simple interface for ease of use, and remote filing option.

Liberty Tax Cons

Less guidance and fewer bells and whistles than competitors.

The Best Free Tax Software

Many tax software products offer a free version for a limited number of tax situations, or perhaps they promote a free federal return but expensive state filing fees. Still, some tax filers seek the best free tax software that truly costs nothing to file taxes.

Looking for an online software product that will help you file your taxes for free? Consider the following options.

FreeTaxUSA

FreeTaxUSA has been called the best low-cost software product, and for good reason. The online tax software offers free filing for all tax situations, including filing jointly and claiming homeownership, dependents, itemized deductions, self-employed income, investments, rental property, retirement income, and tuition program distributions. Because FreeTaxUSA does not offer in-person or phone-based customer support, it’s best suited for users who are more comfortable filing their tax returns with little or no assistance.

The FreeTaxUSA online software does, however, feature easy prior-year imports from TurboTax, H&R Block, or TaxAct. However, it does not include a document import feature, so users have to enter some information manually. Once returns are filed with FreeTaxUSA, they automatically are stored as PDF files for up to 7 years.

FreeTaxUSA is also a great tax software choice for members of the military since it helps them get the biggest available refunds. The software supports tax breaks such as combat pay exclusions, moving expense deductions, uniform deductions, reservist’s travel deductions, job search expenses, EITC for nontaxable combat pay, and others.

FreeTaxUSA Pros

Easy prior-year imports, free for all federal returns, supports military tax breaks.

Cash App Taxes

Formerly known as Credit Karma Tax, Cash App Taxes is quickly gaining a reputation as the best free tax software on the market thanks to its truly free tax filing service for both state and federal returns. The mobile tax filing product is a great option for users who are accustomed to tax software and don’t need one-on-one support.

Unlike many competitor tax preparation software options, Cash App Taxes does not use filers’ income to qualify for free products and services. Instead, it includes most major IRS forms and schedules as well as many other tax situations that other free tax software doesn’t support, including those for rental income and the student loan interest deduction.

Cash App Taxes’ mobile software includes an intuitive navigation tool that assists users throughout the tax preparation process. Additionally, the app saves time by enabling 1040 importation with its Smart File feature. Cash App Taxes also provides free audit defense and guarantees accurate calculations, meaning that if the service errs, users could receive up to $1,000.

Cash App Taxes Pros

Truly free federal and state returns, free audit support, and an easy-to-use interface.

Cash App Taxes Cons

Lacks one-on-one support and difficult to import investments.

TaxHawk

TaxHawk will once again offer free federal tax filing, as well as low-cost state filing. In fact, many tax filers who don’t qualify for free tiers with competitor tax software products might discover better prices with TaxHawk. Even after paying for state filing, many TaxHawk users save money compared to other services.

The TaxHawk tax software, however, is a bare-bones service that doesn’t include W-2 or 1099 imports. Being unable to import tax form PDFs for spreadsheets with investment data could create issues for users with complex tax returns.

Regardless, the TaxHawk software is easy to use and features a range of questions, as well as a quick navigation menu to guide customers through the tax filing process. While state returns cost $14.99, the free federal filing includes many options that cost money with competitors, including interest income, dividends, and self-employment income. TaxHawk even supports cryptocurrency trades, although users must manually key all the information.

TaxHawk Pros

Low-cost state filing, additional free federal options, and a quick navigation menu.

TaxHawk Cons

Only federal returns are free and have a bare-bones interface.

IRS Free File Program

A variety of tax filing software programs offer limited free versions of free filing to taxpayers in certain situations. However, one lesser-known program provides free tax filing with fewer limitations and restrictions. with the IRS Free File program, taxpayers with an adjusted gross income of less than $73,000 can qualify for free tax filing through a number of top tax providers. They also can complete free fillable forms to file through the IRS website.

IRS Free File partners include TaxAct, FreeTaxUSA, TaxSlayer, and a number of other tax software companies. While the program has entered its third decade, many taxpayers are unaware of the IRS Free File option, although the IRS estimates that as many as 70% of all taxpayers qualify for the program.

Free File Pros

Free federal returns for more taxpayers and multiple partners to choose from.

Free file Cons

Not available to taxpayers earning more than $73,000 per year.

Tax Filing Software Comparison Table

What is the Best Tax Software?

The best tax software depends greatly on each individual taxpayer and their financial situation. How complex is your tax return? Do you have to complete multiple tax forms and claim a variety of deductions, or is it a simple return based on a single W-4 with a standard deduction?

Are you an educated tax filer who understands the information and has an idea of what to expect from your tax return? Do you know the various 1099 rules and deduction requirements? Or are you an inexperienced taxpayer who needs additional guidance?

Are you looking for free tax software, or are you comfortable with paying a modest fee? Keep the answers to these questions in mind when comparing the best tax software providers.

What is Tax Software, and How Does it Work?

We all hear plenty about the various tools, but what is tax software, and how does it work? The digital products offer users varying levels of guided help to file their federal and state tax returns.

In addition to helpful interfaces that assist tax filers with completing the appropriate tax forms, some tax software also imports tax forms from the IRS, locates tax deductions, and provides both expert tax help and customer service support.

While the exact process for each type of tax software will vary, most operate in a similar manner. Here’s how tax software typically works:

• User Interface and Guidance: The software assists users by leading them through a step-by-step process, clarifying which tax forms must be filled out according to their individual or business financial circumstances. It frequently employs a question-and-answer format, making it simpler and more accessible for those who are not well-versed in tax laws.
• Data Input: The user provides information from their tax documents, such as W-2s and 1099s. This may include details about their income, payments, deductions (like mortgage interest, student loan interest, business expenses, and health savings account contributions), and other relevant financial data. Some sophisticated tax software products can also import tax forms directly from the IRS or from other financial institutions to streamline the data entry process.
• Calculations: Once the data has been entered, the software automatically calculates the user’s tax liability or refund based on the provided information. It applies current tax laws, considers any available tax credits or deductions, and takes into account the tax filing status of the user (e.g., single, married filing jointly, head of household, etc.)
• Payment or Refund Management: If the user owes taxes, they can often pay directly through the software using their bank account details. Conversely, if the user is due a refund, they can provide their banking details for a direct deposit.
• Filing Taxes: After everything is complete, the user has the option to e-file their taxes directly to the IRS and state tax agencies through the software. Alternatively, they may choose to print out the completed forms and mail them in for a more traditional paper filing.
• Customer Support and Expert Assistance: Most tax software offers some form of customer service or expert tax help. This could range from FAQs and online forums to live chat support or even one-on-one consultations with tax professionals.
• Cost and Pricing Options: The price for tax software varies based on the complexity of the user’s financial situation and the level of assistance they require. Some platforms offer free versions for users with simpler tax situations, while others may charge a fee for additional features or more complicated tax situations.

In summary, tax software is a valuable tool that can help streamline the tax preparation process, increase accuracy, and save users time and potentially money by identifying all applicable deductions and credits. It’s a useful resource for both novices and experienced tax filers alike.

Why You Should Use Tax Preparation Software

Processing the taxes for your business doesn’t have to be too unpleasant when you have the right tools. But you have to remember it can go beyond just filing a W-2 for small businesses depending on your business structure. If you are among the millions of self-employed filers, there are several reasons to consider using online tax software or small business tax services when preparing your business taxes:

• Better time and money savings: The time you will save using tax software is huge. You can easily knock an hour off your prep time, if not more. This benefit is especially helpful if you have to file Schedule C and other forms.
• Ease of use: All the programs we reviewed are easy to use, even if you have no prior experience with tax software. They walk you through the process step by step, and most include help features in case you get stuck.
• Accuracy: The best tax prep software options are highly accurate, which reduces the chances that you will make an error on your return. This fact is especially important if you are self-employed or have a complex tax situation.
• Deductions and credits: Most programs have built-in features that help you find deductions and credits you may be eligible for, saving you a good deal of money.
• Free expert support: Many tax prep software programs offer free support, audit assistance, and advice from a tax pro.
• Streamlines the process: Utilizing tax software programs can keep you organized and informed about your taxes year-round. This can ultimately save you both time and money in the long term.

Evaluating Your Tax Software Needs

Choosing the right tax software is a critical decision for small business owners. The appropriate software can save time, reduce errors, and ensure compliance with tax laws. This section will help you evaluate your specific tax software needs, ensuring you select a product that aligns perfectly with your business requirements.

Assessing Your Tax Situation

Start by assessing the complexity of your tax situation. If you have a straightforward tax profile, such as a sole proprietorship with standard deductions, basic tax software might suffice. However, more complex situations like multiple income streams, investments, or operating in various states may require advanced software features.

Considering Business Size and Structure

Your business size and structure significantly influence your tax software needs. A solo entrepreneur has different requirements compared to a business with employees or complex corporate structures. Ensure the software you choose can handle your specific business type, whether it’s an LLC, partnership, S-corp, or sole proprietorship.

Identifying Key Features Needed

List the key features you need in tax software. These might include income and expense tracking, support for specific tax forms, the ability to handle state and federal taxes, or features for specific deductions relevant to your industry.

Integration with Other Systems

Consider how well the software integrates with other systems you use, such as accounting or payroll software. Seamless integration can save time and reduce the likelihood of errors by automating data transfer.

Forecasting Future Needs

Think about not just your current needs but also potential future requirements. As your business grows, your tax situation may become more complex. Choose software that can scale with your business to avoid the need for switching systems later on.

Evaluating Cost vs. Benefit

Analyze the cost-benefit ratio of the software. While cost shouldn’t be the only deciding factor, it’s important to choose software that offers the features you need at a reasonable price. Also, consider the long-term savings in terms of time and resources that efficient tax software can offer.

By carefully evaluating these aspects, you can choose tax software that not only meets your current needs but also supports your business as it grows and evolves.

How to Choose the Best Tax Preparation Software for Your Small Business

With so many great tax preparation software tools from which to choose, how can a taxpayer decide on the best service for their tax situation? If you’re comparing the various online tax software products, be sure to make the following considerations:

Compare Software Costs

How much do you hope to spend on tax preparation software? Are you looking for the cheapest possible option, or do you have the budget to support additional features? Some software offers only a bare-bones option for free, with upgrades to support additional features. Does your income level qualify for the IRS Free File program?

Consider Available Tax Forms

Are you entering tax information from a simple 1040 form, or does your individual tax situation involve additional streams of business income or unemployment income reported on a w9 form or another tax document? Some tax software companies support a wide range of tax forms in their free version, while others require users to upgrade and pay extra fees to file extra tax forms. Also, don’t forget to ensure the selected software program supports any credits for which you qualify, including the earned income tax credit, the child tax credit, and itemized deductions for charitable donations.

Remember Other Business Needs

Do you need a simple online software program that merely supports tax filing, or are you in search of a more comprehensive financial software product that supports additional business needs? If you are looking for programs that include features such as invoicing software, then you will want to consider software providers that fulfill a wider range of financial needs.

Beware of Potential Tax Scams

Tax season can also be known as scam season, as a plethora of offers from imitation providers with false promises of larger refunds infiltrate taxpayers’ inboxes. When considering the best tax software, stick with trusted brands and offers found on legitimate websites, otherwise, you could unknowingly provide your private information to tax scams.

Final Words

What is the best tax software? It all depends on the taxpayer’s wants and needs. Are you looking for a simple software product that costs the least or a robust set of technological tools that will provide the maximum tax refund or lowest taxable income? While plenty of users prefer trusted brands like H&R Block and TurboTax, other taxpayers are opting for lesser-known software options that cost less while still providing a superior tax filing experience.

How much does it cost to use tax software?

The cost to use tax apps ranges from free to hundreds of dollars depending on the software provider and the complexity of the tax return. Tax filers whose tax returns might include forms not generally offered in the free version of most tax software might qualify to file federal taxes for free using the IRS Free Filing program for taxpayers earning less than $73,000 per year.

Which free tax filing software is best?

Formerly Credit Karma Tax, Cash App Taxes offers superior free tax filing services compared to competitors like H&R Block and TurboTax. The Cash App Taxes software supports a wider range of available tax forms and features more useful tools to maximize a tax return than comparable free products. Plus, state returns are also free for most taxpayers.

What happens if you miss the tax deadline?

If you miss the tax deadline, a few things can happen. The most common penalties for filing taxes late are failure-to-file and failure-to-pay penalties if you don’t pay by the due date. However, if you can show that you had a good reason for not filing on time, the IRS may waive the failure-to-file penalty. You can also ask for a payment plan if you can’t pay your entire tax bill at once.

Should I hire a tax professional to help with my small business tax filing?

There are a few things to consider when deciding whether or not to hire a tax professional to help with your small business’s tax filing. The most important factor is how complex your taxes are. If you have more than one business, own property, or have investments, you may need the help of a professional to get all those tax figures and deductions you need.

You should also consider how comfortable you are with doing your own taxes and whether or not you have the time to do them. If you decide to hire a professional, make sure you choose someone who is qualified and reputable. You can check the IRS website for a list of registered tax preparers in your area.

Lastly, keep in mind that tax preparation fees are a deductible expense, whether it’s a DIY filing or working closely with a tax professional or accountant.

When should I consider hiring a tax professional?

Should you hire tax preparation services instead of selecting tax software? While filing your own tax return using online software is an option available for practically any taxpayer, the savings might not be worth the cost in some situations.

Certainly, it can cost less to use online tax apps than to hire a professional tax preparer, but if the trade-off is lost deductions and tax credits that otherwise would significantly lower a tax bill, then the better option is to pay for the expert service.

Which free tax software is best?

Which free tax software is the best? Is it the free version of the H&R Block tax filing program, or perhaps the ultra-popular TurboTax free version? While those might be adequate for taxpayers with a simple W2 form, the upgrades for additional forms and deductions come with fees.

Cash App Taxes provides the most robust software program for free filing taxes, although the IRS Free File program will help taxpayers earning $73,000 or less file federal taxes with partner programs at no cost.

What software do tax preparers use?

The best online tax software products like H&R Block and TurboTax might offer tax filers user-friendly experiences, but they are not the same products used by a professional tax preparer such as a certified public accountant. Tax preparers rely on professional tax software products like ProSeries, ProConnect, and TaxAct Professional to sign and e-file returns as paid preparers.

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This article, "The Best Tax Software: Amazing Paid and Free Options" was first published on Small Business Trends

Small business owners may use their personal vehicles for business driving. This is perfectly advisable from a cost-saving perspective, and it’s permissible for tax purposes, too. The only catch is that in order to deduct the cost of driving a business, you need to substantiate the business’s use of the vehicle. The tax rules are very strict on what this means. There’s a right way and a wrong way to do it.

Records must be contemporaneous

This means required information must be noted in a logbook, app, or other record at or near the time of each business trip in the vehicle. In one case, a contractor created his mileage record solely for use when he was audited; the notations weren’t made contemporaneously with the business use of his Mercedes. What’s more, his record was a calendar with minimal notations about business appointments, which is not good enough, as you’ll see.

Required information

It is not enough to simply record the date and mileage for business travel for tax substantiation purposes. The IRS says you must also document:

• The date
• The destination (city, town, or area)
• The business purpose
• The odometer reading at the start and finish of each trip (total miles for the trip)
• The expenses should include the type (e.g., oil, gas) and the amount unless the IRS standard mileage rate is applied (explained below).

If you choose to deduct the IRS standard mileage rate instead of actual expenses, you still need to keep a record of all the information other than expenses. The standard mileage rate is 58.5¢ per mile for business driving during the first part of the year and 62.5¢ per mile during the latter part of the year. Again, using the standard mileage rate does not relieve you from the obligation of recording all other information about each business trip.

Sampling for recordkeeping

Instead of documenting information for every business trip in your vehicle, you can maintain a sufficient record for specific periods within a tax year and use that record to demonstrate the total business use for the entire year. This method is known as “sampling,” and you must ensure that the periods for which you keep adequate records accurately represent the overall usage throughout the tax year. For instance, if you drive a similar number of miles for business each month, recording detailed information for the first three months allows you to estimate your mileage for the entire year. Likewise, if you track your mileage for the first week of each month, those weekly records can be utilized to substantiate business driving for the month.

The IRS provides the following example: You use your car to visit client offices, meet with suppliers and subcontractors, and pick up and deliver items for clients. While there is no other business use for the car, you and your family also use it for personal purposes. You maintain thorough records during the first week of each month, demonstrating that 75% of the car’s use is for business purposes. Invoices and bills confirm that your business use remains consistent throughout the later weeks of each month. Your weekly records accurately represent the car’s usage each month and serve as adequate evidence substantiating business driving for the annual percentage of business use.

Documentary evidence for actual expenses

If you choose not to use the standard mileage rate to calculate your deduction for the cost of substantiating business driving and opt to deduct your actual expenses instead, you must retain receipts, canceled checks, credit card statements, bills, or other forms of documentation that support the costs associated with business use. This requirement is in addition to the mileage record and other information mentioned earlier.

Distinguish between business and personal driving

The expenses incurred for personal driving are not tax deductible. Commuting costs are considered nondeductible personal expenses. To accurately claim deductions, keep track of the miles traveled from your office to any location related to your business, such as visiting a customer or vendor, going to the bank or post office, or purchasing supplies. If you operate a home-based business, trips from your home to any business-related destination and back are also counted as business trips.

Conclusion

Be sure to note that only self-employed individuals can deduct the cost of business driving. Owners of corporations that are employees can’t deduct their costs on their personal returns but can arrange for reimbursement from their businesses using an accountable plan; this requires the same substantiation. Sure, it takes effort to maintain adequate records of business driving, but it’s worth it. Just figure that if you are a self-employed individual who drives 8,000 miles for business (assuming the same miles each month) and you use the IRS standard mileage rate, you can deduct $4,840. That’s not nothing.

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This article, "Substantiating Business Driving the Right Way" was first published on Small Business Trends