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    What makes preparing taxes for businesses more complicated than preparing personal income taxes?
    The Vault

    What makes preparing taxes for businesses more complicated than preparing personal income taxes?

    June 2023
    Thousands of Americans prepare their income taxes annually using online or downloadable software. However, preparing business taxes can be much more difficult, leading many company owners to hire a professional. Keep reading to learn why these business professionals believe preparing taxes for a business is much more challenging than preparing them for an individual.
    Percy Grunwald

    Percy Grunwald

    Co-Founder of .

    7 Reasons Why Preparing Business Taxes are More Complex

    1. Multiple sources of income: Businesses often have multiple sources of income, such as sales revenue, rental income, interest income, and dividends. Each source needs to be accurately recorded and reported for tax purposes.

    2. Complex deductions and credits: Businesses are eligible for a wide range of deductions and credits that individuals may not have access to. These can include expenses for operating the business, employee wages, benefits, depreciation of assets, research and development costs, and more. Determining which deductions and credits apply to the business and calculating them correctly can be challenging.

    3. Depreciation and asset management: Businesses own and use various assets, such as buildings, equipment, and vehicles. These assets depreciate over time, and the depreciation expenses need to be accurately calculated and recorded for tax purposes. Managing asset records and staying updated with depreciation rules can be complex.

    4. Payroll taxes and employee benefits: Businesses with employees have additional tax obligations related to payroll taxes, including Social Security, Medicare, and unemployment taxes. Managing payroll, calculating the taxes owed, and properly filing the associated forms can be complex and time-consuming.

    5. Entity structure considerations: Businesses can have different legal structures, such as sole proprietorships, partnerships, limited liability companies (LLCs), S corporations, and C corporations. Each structure has different tax rules and requirements, and selecting the right structure can impact the business's tax liability.

    6. Compliance with tax laws: Businesses must comply with numerous tax laws, regulations, and reporting requirements. Tax codes can be complex and subject to frequent changes. Staying updated with the latest regulations and ensuring compliance can be challenging for business owners and tax preparers.

    7. Recordkeeping and documentation: Businesses must maintain detailed records and documentation to support their income, expenses, deductions, and credits claimed on their tax returns. This includes keeping track of receipts, invoices, bank statements, and other financial documents. Organizing and managing these records can be extensive and time-consuming.

    Azzam Sheikh

    Azzam Sheikh

    Digital Strategist at .

    Navigating Amortization and Depreciation

    The cost of an item can be spread out throughout its useful life through a process known as amortization or depreciation. Tax laws frequently let businesses speed up their depreciation or claim a Section 179 deduction, both of which can result in a large tax gain for the company. It can be difficult to maneuver around these laws, identify the appropriate depreciation method and useful life for each asset, and keep track of depreciation deductions as time passes.

    Emily Onkey

    Emily Onkey

    Co-Founder and Chief Marketing Officer of .

    Employee Benefits Change Everything

    Payroll tax withholding is challenging enough. Once you add health benefits and retirement planning, it makes tax preparation all the more complicated.

    The tax implications for offering health benefits and 401K withholdings require highly-skilled accountants.

    Jessica Watson

    Tax Complications Unique to Businesses

    Tax preparation for firms is typically more difficult than for individuals for a variety of reasons, including:

    ● Complexity of Business Structure: Businesses can be organized legally in a variety of ways, including as partnerships, LLCs, S corporations, C corporations, sole proprietorships, and other entities. The fact that each structure has its own distinct set of tax regulations and forms to submit makes the process of preparing taxes more difficult.

    Businesses frequently have a variety of revenue streams, including sales, interest, investments, rental income, and more. Accurate record-keeping and knowledge of the relevant tax rules are necessary for tracking and reporting these many income streams.

    ● Deductions and Expenses: Businesses are entitled to a number of deductions and expenses that ordinarily are not available to individuals. These deductions could be made for things like staff salaries, office rent, utilities, equipment, advertising costs, and more that are connected to running a business. The right identification and deduction of these costs necessitate a detailed comprehension of tax laws and supporting paperwork.

    ● Payroll taxes and employee benefits: Companies that employ people face extra payroll tax challenges, such as withholding taxes for income tax, Social Security and Medicare contributions, and unemployment insurance. Businesses may also offer fringe benefits like health insurance, retirement programs, and other advantages to employees, all of which have their own tax repercussions.

    Sales tax and use tax laws apply to companies that sell products or services, so they must comply with them. It might be difficult to comprehend the rules and guidelines for collecting, reporting, and remitting sales tax, particularly when working with different tax jurisdictions and rates.

    ● Tax Deadlines: There are specific tax deadlines that businesses must adhere to, such as anticipated tax payments, payroll tax filings, and annual tax returns. Businesses must remain on top of their tax duties all year because missing these dates can result in fines and interest.

    ● Tax Planning and Strategies: To improve their tax status and reduce tax bills, businesses frequently participate in tax planning. In order to make decisions that are advantageous to the financial status of the firm, it is necessary to comprehend the complexities of tax laws, exemptions, credits, and incentives. Tax strategy implementation involves in-depth research and knowledge.

    Overall, a variety of legislative frameworks, numerous income streams, deductions, and expenses, as well as payroll tax obligations, regulatory requirements, and the need for careful tax planning, are the causes of corporate taxes' complexity. Due to these complications, many firms look to tax experts or accountants for guidance in order to ensure accurate and legal tax filings.

    Ben Gold

    Business Tax Codes and Regulations Vary Significantly

    Here are some insights on what makes preparing taxes for businesses more complicated compared to individuals:

    1. Complex Tax Codes - Business tax codes are significantly more complex than individual tax codes. Business owners must navigate multiple tax codes that are specific to their industry, which can be challenging without professional guidance.

    2. Multiple Revenue Streams - Businesses often have multiple revenue streams, each with its own set of tax implications. This can make it difficult to keep track of all tax-related documents and deadlines.

    3. Industry-Specific Regulations - Depending on the industry, businesses may be subject to additional regulations and tax requirements. For example, real estate investors must follow specific IRS guidelines when reporting rental income.

    While preparing taxes for businesses can be complicated, it's essential to seek out guidance and support from experts in the field to create a customized plan that works best for your situation.

    This is a crowdsourced article. Contributors' statements do not necessarily reflect the opinion of this website, other people, businesses, or other contributors.

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