Does tax preparation feel like yanking teeth with no anesthesia?
You’re not alone! For many small business owners, tax time and root canals have a lot in common — they’re both unavoidable and might result in intense pain. But enough about dentistry… let’s talk about setting your retail business up for tax season success.
From collecting bank statements to tax filing, you’ve got a lot to do, on top of running your store and providing excellent customer service. We want to help!
Use this article as a small business tax preparation checklist. You’ll find out which taxes you have to pay, by when, and how to make sure you’re prepared so your store can thrive.
As a retail store owner, you likely fall under the small business threshold (the IRS generally defines a small business as having less than $25 million in average annual revenue and fewer than 250 employees).
We’ll dig deeper into the taxes you’re required to pay, but your biggest concerns are income tax, self-employment tax, sales tax, and payroll taxes.
You'll save yourself headaches, penalties, huge tax bills, and other legal and financial consequences if you do your taxes right. Tax compliance should be a top priority for any small business owner. Make sure you keep detailed records, learn what you don't know, consult experts, and file on time.
Now, let’s dive into our checklist!
It’s your responsibility as a business owner to meet federal and state tax obligations. The various types of tax you may be required to file include:
Income Taxes: Income taxes are the state and federal taxes you pay on the profits you make. The amount you owe depends on the structure you choose for your business. Keep detailed records of all income and expenses, because that's how you'll figure out your taxable income.
Sales Taxes: Unlike income taxes, which are computed on profits, sales taxes are collected at the point of sale (POS) and then remitted. State and local sales tax rates vary significantly. For accurate collection and filing, you need to know the specific sales tax requirements for your retail location.
Self-Employment Taxes: As a sole proprietor or partner in your business, you’re required to pay both the employee and employer parts of Social Security and Medicare taxes. The self-employment tax rate is 15.3 percent on the first $142,800 of net income, divided as follows:
If you’re self-employed in your business, you must pay estimated taxes every quarter. The first payment for the 2024 tax year is due April 15, with other payments due June 17, September 16, and January 15, 2025.
Payroll Taxes: If you have employees, you're also responsible for handling payroll taxes. These include withholding a portion of your employees' income for Social Security and Medicare taxes (often referred to as FICA), federal and state income taxes, and unemployment taxes that you pay as an employer.
Here are the main taxes you need to withhold:
Note: Please consult a tax advisor if you’re unsure about any of these employment taxes.
There are varying opinions on the best business structure for retail businesses. Here’s an example of the pros and cons of each.
If your business is set up as a C corporation, you face double taxation — first on the money your store makes, then when you pay dividends to your shareholders. C corporations might not be the best option for small retail businesses, because you’ll need to comply with more regulations, record-keeping, and tax requirements.
It might be wise to consider a limited liability company (LLC) structure, because limited liability protects your assets. S corporations are also easy to set up if you want a simple solution.
It’s your responsibility to pay what you owe in federal and state taxes. Whether your business is set up as a sole proprietorship, partnership, C corporation, or S corporation, you may be responsible for various types of taxes.
It would be great if there was a catch-all form for business taxes — but that’s not the case. You’ll need to file various forms to report profits, losses, and deductions to the IRS. Common forms include:
Form 1065: If you're in a partnership, you'll file this form to report your share of the business' income, losses, deductions, and credits.
From 1120-S: This is the main tax return for S corporations. It's where your S corp reports income, gains, losses, deductions, and credits.
Form 940: File this annual return to report federal unemployment tax. It’s how you, as an employer, pay into the unemployment insurance system for your workers.
Form 941: Your primary quarterly payroll tax filing to report income taxes, Social Security tax, and Medicare tax withheld from employees' pay. You'll summarize the total wages paid and total federal payroll taxes due on this form.
1099-NEC: If you hire contractors in your store, and pay them $600 or more annually, use this form to report what you pay them.
1099-MISC: Any miscellaneous income over $600 paid to a contractor gets reported on this form — things like rents, royalties, prizes, or awards.
For a more detailed breakdown of the forms you need to file as a small business, check out this guide: Ultimate guide to small business tax forms, schedules, and resources.
Having accurate and organized financial records is crucial for small business tax preparation. Properly tracking finances can save headaches come tax time. You’ll need to document business income, deductions, credits, and other activities. If you don’t, you might miss out on deductions and even face an audit.
Here are some key financial documents you should keep for tax purposes:
Having these documents neatly organized will make tax preparation a breeze instead of a nightmare.
One way to minimize your tax bill is to categorize and track your expenses. The IRS allows you to deduct the "ordinary and necessary" costs of operating your store. But you’ll need to provide documentation. Common categories include:
As a retailer, there are some industry-specific deductions you can take advantage of:
Factor these in when logging your business expenses and claiming deductions. The lower your net income, the lower your tax bill.
Note: There are various tax credits you could be eligible for, depending on your business and hiring practices. For example, the Work Opportunity Tax Credit is given to companies that hire targeted groups.
Don’t let tax deadlines pass you by! It’s easy to forget about them when you’ve got so much on your plate. Consider outsourcing your taxes to a payroll company, but if you can’t stay on top of the key dates — here are the dates for 2024:
For a more complete breakdown of these dates, check out this article: Small Business 2024 Tax Deadlines — What You Need to Know.
It’s critical to file and pay your taxes on time. Late filing and payment penalties are often severe. Add all tax deadlines and estimated payment dates to your calendar and set reminders. It’s a good idea to speak to a tax professional or invest in tax planning software.
One tool at your disposal that’s helpful when preparing for tax season is a point of sale system. Some of the ways it can help include:
…and more!
To find out how Comcash can help manage your retail business and make tax preparation easier, schedule a demo with our retail experts today.