You might think your small business tax preparation cost is adding insult to injury if you’re anticipating a big tax bill. On the other hand, a big tax bill means you’ve been profitable — that’s a positive sign. Regardless of the size of your tax bill, it’s crucial to prepare for tax costs before filing.
Know Your Filing Deadlines
Different business structures have varying tax filing deadlines:
- The deadline for S Corporations, Partnerships, and Multiple-Member LLCS is March 15, 2024.
- Sole Proprietorships, Single-Member LLCs, and C Corporations have until April 15, 2024, to file taxes.
If needed, both deadlines can be extended with a request for an extension to push the filing back by six months. However, it’s important to note that an extension only extends the filing deadline, not the payment deadline. You are expected to still pay at least 90% of your tax liability by the original spring filing deadline to avoid any penalties or interest.
Estimate Your Tax Preparation Fees in 2024
The cost of tax preparation depends on several factors:
- Location: Larger cities tend to have higher tax preparation rates than small towns. If you’ve used professional tax services before, review your past invoices to get an idea of what to expect this year.
- Complexity: Simple tax returns cost less than complex ones. Certain industries, like real estate businesses, which have specific tax considerations, have unique deductions. If you have employees, payroll taxes and reporting add another layer of complexity.
- Organization: Well-organized financial records reduce the time a tax professional will spend filing your taxes. Use accounting software or hire a bookkeeper to maintain accurate records. Keep track of income, expenses, receipts, and invoices throughout the year.
Look for a Competitive Tax Preparation Service
There are lots of tax preparation services on the market, including many online. Shopping around can help ensure that you aren’t overpaying. According to the US Tax Center, the average cost of professional tax preparation is $261 for a 1040 Tax Form with itemized deductions (Schedule A) plus a state tax return. A tax professional can help you identify tax-saving deductions and help minimize any potential errors.
For example, suppose you inadvertently underpaid your tax bill by $8,000. The penalty could be one-half of a percent per month you are late (in some situations higher penalty rates may apply), plus accrued interest. So, if the IRS calls this to your attention nine months after you file your return, you could have racked up a $360 penalty, plus interest. Filing with a professional can help you avoid tax penalties from mistakes on your return.
Lastly, remember that the cost of tax return preparation is a tax-deductible business expense.
Consider Tax Preparation Software
Tax software automates the whole filing process, keeps you organized, and is usually a cheaper alternative than a tax professional. There are many options available nowadays, including some that can be directly downloaded onto your computer like TurboTax Business or online cloud-based software like Intuit QuickBooks Online.
If you opt for this route, make sure you choose software designed for small businesses. Look for features tailored to suit your business structure (Partnership, LLC, Corporation). Some software may take time to learn, especially if you are new to tax preparation. While tax software provides some guidance, it may not offer you personalized advice like a tax professional would. If your business has complex transactions or unique circumstances, tax preparation software may not cover all scenarios.
Plan with a Budget
You’ll need to have cash on hand to pay your 2023 tax preparation fees. These fees, as well as taxes owed, should be built into your next (2024) annual expense budget. If the time comes and your small business tax preparation cost is higher than you anticipated, don’t fret. There are steps you can take to get your budget back on track, and you can breathe a sigh of relief knowing your taxes are done.
