Managing a business means acting, reacting, and making dozens of important decisions every day.
With quick choices in the heat of the moment that pop up to dealing with standard operating procedure, it’s easy to lose sight of what’ll happen next week, let alone next month. Planning for the long-term can feel daunting, especially when it comes to taxes.
It seems every year tax season has a way of sneaking up on us. You scramble to reconcile your books and run your business at the same time. Long nights. Panic. Frustration. Where is that receipt from that one lunch in January last year?
But this year will be different. This year, you’ll be organized. We’ll show you how.
The key to staying on top of it all is to start now. Planning for the interim IRS due dates can ensure you’re on track and ready to close out your year. That’s why we’ve created the 2020 Small Business Tax Calendar. Use this it help minimize your risk of accruing unnecessary penalties and interest costs.
What’s your process?
Proper tax planning requires you to submit tax documents on a variety of due dates.
Start this process by checking with your CPA to confirm the due dates for the upcoming tax year. Create a system to remind you when these dates are coming up, and include enough lead-time to file the tax documents in a timely manner. You can input new alerts into your calendar software, or write the dates in your planner.
Your biggest time saver
For many businesses, payroll is the most complicated and time-consuming task that must be performed, and taxes are part of that process. If you create a system to process payroll efficiently, you can save a large amount of time.
Payroll is complicated for several reasons:
- Employee records: Each worker’s payroll information is different, including different salaries, hourly rates, tax withholdings, and benefit payments. Payroll information also changes, as employees are promoted or have a change in family status. Maintaining these records is time-consuming.
- Tax tables: Both federal and state income tax rates change frequently, and companies with employees in multiple states must withhold income taxes for more than one state. In addition, you may need to withhold income for city and local taxes. This makes calculating gross and net pay even more difficult.
- Tax reporting: Tax reporting: The federal, state, and city income tax returns are all different, and you may need to file a dozen tax forms each month and year.
You may save time and costs by outsourcing the payroll function to an outside company, such as QuickBooks Online Payroll. These companies can manage both payroll processing and tax reporting, and they make the necessary changes to their software as the tax laws change.
2020 tax calendar
Here are the important due dates you need to know for 2020. They’re grouped by the type of tax collected:
Estimated tax payments
Your firm may hire and pay both full-time employees and independent contractors.
Businesses are required to withhold federal and state income taxes from employee wages. Your firm does not withhold taxes for contractors, but companies must report payments made to independent contractors. The taxes and reports are submitted on several dates throughout the year.
January 31, 20120
Deadline to send out W-2 for your employees and to file the documents with the IRS. You will need to submit copies of their W-2s to the IRS.
February 28, 2020
Deadline for businesses to file information returns that report on 1099s issued for 2018. Companies use IRS Form 1096 (Annual Summary and Transmittal of US Information Returns for this filing).
April 1, 2020
Deadline for filing 1099s electronically. If you don’t file electronically, the deadline is February 28 (see above).
Corporate tax returns
The type of tax return that your company must file depends on the business structure you choose when you start your business.
Here are the most common forms of business structure:
- Sole proprietorship: You are the only owner of the business, and setting up this type of entity is the easiest. However, you’re exposed to business legal liability, because there is no legal difference between you personally and your business. If you own a coffee shop, for example, and a customer falls and sues your shop for negligence, both your business and personal assets are at risk.
- Corporation: A corporation (or C corp) offers the most legal protection because the business is a separate legal entity from the owner. A C corp also makes it easy to bring in other owners by issuing shares of common stock. However, setting up a C corp and meeting the regulatory reporting guidelines can be time-consuming.
- S corporation: If you’re an S-corporation (S corp), all the profits and losses of the S corp are passed through to each shareholder’s tax return.
- Partnership: A partnership files a tax return, but the profits and losses of the partnership are passed through to each partner’s tax return.
- Limited liability company (LLC): An LLC allows you to limit your personal liability for business risks, but not have to meet the same level of regulatory requirements as a corporation. There are several different LLC structures, based on your state’s tax laws.
Work with a CPA or an attorney and consider the pros and cons of each business structure. Once you know your business structure, you can use these dates for tax filing and reporting purposes:
March 15, 2020
Tax return deadline for S Corps (using Form 1102S), and for partnerships (using Form 1065). You can file for a 6-month extension to file either return, but your tax liability is still due on March 15th.
April 15, 2020
This is the due date for corporate tax returns, using Form 1120. If you must make 2019 estimated tax payments for your business, the 1st quarter 2020 payment is due on April 15, 2020.
June 17, 2020
If you must make 2020 estimated tax payments for your business, the 2nd quarter 2020 payment is due on June 17, 2020.
September 16, 2020
If you must make 2020 estimated tax payments for your business, the 3rd quarter 2020 payment is due on September 16, 2020. If you received a 6-month extension to file a tax return for an S corp or a partnership, the return is due on September 16.
October 15, 2020
If you were granted an extension of time to file a corporate tax return, your tax return is due on this date.
December 16, 2020
If you must make 2020 estimated tax payments for your business, the 4th quarter 2020 payment is due on this date.
Estimated tax payments
Self-employed individuals and most businesses must make quarterly tax payments. These payments ensure that the individual or business pays a large percentage of the estimated tax liability during the year, rather than in one payment when the tax return is filed.
You’ll see both business and personal estimated tax payment dates below.
Individual tax returns
Almost everyone is required to file a personal tax return using Form 1040, and this includes business owners. The income produced by your corporation, partnership, or other business entity may generate income that is posted to your personal tax return.
January 15, 2020
Deadline for 4th quarter estimated tax payments for 2019.
April 15, 2020
Individuals must file the 2018 income tax return and pay any remaining tax liability due by this date. You can request more time to file your tax return by completing IRS Form 4868, but your tax liability is still due by April 15. If you must make 2020 estimated tax payments for your personal taxes, the 1st quarter 2020 payment is due on April 15, 2020.
June 17, 2020
If you must make 2020 estimated tax payments for your personal taxes, the 2nd quarter 2020 payment is due on June 17, 2020.
September 16, 2020
If you must make 2020 estimated tax payments for your personal taxes, the 3rd quarter 2020 payment is due on September 16, 2020.
October 15, 2020
If you were granted an extension of time by filing Form 4868, your tax return is due on this date.
January 15, 2021
If you must make 2020 estimated tax payments for your personal taxes, the 4th quarter 2020 payment is due on this date. If you need to know any of these dates for your business or personal taxes, post the dates to your calendar and set up a reminder so that you’re alerted when the date arrives. This system will keep you on track and help you avoid tax fees and penalties.
As you think about tax planning, consider these common taxpayer misconceptions:
- Realized gains vs. recognized gains: If you buy an asset and sell it for more than you paid for it, you have a realized gain. If, for example, you buy 100 shares of IBM common stock at $10,000 and sell the shares for $15,000, your realized gain is $5,000. A recognized gain, on the other hand, means that you owe taxes on the gain. Not every realized gain is recognized for tax purposes, and there are dozens of examples. In some cases, you can offset a realized gain with a realized loss and not owe taxes on the gain. This can impact both business and personal tax returns.
- Marginal tax rate: Your marginal tax rate is not the tax you pay on all of your income. Instead, the marginal tax rate is the tax you pay on your next dollar of income. The IRS Tax Tables provide different tax rates for different levels of income. For 2019, taxpayers pay at 22% tax rate on income from $39,475 to $78,950, and a 24% rate on income from $84,200 to $168,400. Assume, for example, that your salary is $82,500. If you earned $10 more in 2019, you would pay 24% on those next $10, and your marginal tax rate is 24%.
- Alternative minimum tax (AMT): Some individual taxpayers must calculate their tax liability twice, because of AMT. The alternative minimum tax was put in place to assess taxes on certain transactions that would otherwise not be taxed. A good example is income earned on certain municipal bond income. Assume that you calculate your taxes and come up with a $15,000 tax liability, and the tax law requires you to calculate AMT. The AMT calculation will add municipal bond income into tax calculation-income that is tax-exempt outside AMT. If the AMT tax calculation generates a higher tax liability, you pay taxes on the larger amount.
Make sure that you understand how each of these issues impacts your personal or business tax return.
Invest the time to plan
Invest the time that’s necessary to calculate your taxes, make payments, and file the returns on time. Proper planning can help you avoid interest costs and penalties down the road. Ask a CPA to help you with this process.