Entrepreneurship involves taking on many challenges, one of which is managing your company’s tax obligations. To help you file your small business taxes, here is some information.
New business owners face additional tax filing requirements when they begin selling their product or service, which occurs at a rate of about 400,000 per year. Whether a company is organized as a corporation or a pass-through entity, it will have to file its taxes in one of several ways.
You don’t need to become an expert in tax law to file business taxes, but you will need to be aware of the specific forms and deadlines that apply to your business structure.
A woman in an apron is seen working late on the books.
First, compile your company’s paperwork.
To determine your tax liability, you must first determine your company’s income and expenditures. Use a small business accounting program to keep tabs on your company’s cash flow. QuickBooks, FreshBooks, and Wave are just a few examples of the many available choices. The process of compiling your tax documents may be as easy as printing a Profit and Loss Statement if you use one of these apps.
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In that case, you may need to compile records such as invoices, receipts, payroll records, mileage logs, asset purchase details, and bank and credit card statements for your business.
Secondly, fill out the appropriate tax forms.
Depending on the legal structure of your company, you may need to file a different tax return to report business income.
Individual ownership. There is no need for sole proprietors to file a separate tax return for the business. Instead, the business owner’s income and deductions should be reported on Schedule C, Profit or Loss from Business, which is filed alongside the individual tax return.
Partnership. Form 1065, U.S. Return of Partnership Income, is used by partnerships to report their taxable income to the Internal Revenue Service (IRS). Instead, the profit or loss from the partnership is allocated to the individual partners and reported on Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc.
Corporation with limited liability (LLC). There are a few ways to file LLC business taxes. Single-member limited liability companies (LLCs) are treated by the Internal Revenue Service (IRS) in the same manner as sole proprietorships. Schedule C of the individual tax return is where the business owner reports their income and expenses. With more than one owner, an LLC is considered a multiple-member LLC and must file the same form as a partnership. Form 1065. Legally, a limited liability company (LLC) can choose to be taxed either as a S corporation or a C corporation.
Organizational structure using the S corporation form. For federal income tax purposes, S corporations use Form 1120S, U.S. Income Tax Return for a S Corporation. S corp shareholders receive a Schedule K-1, Shareholder’s Share of Income, Deductions, Credits, etc., similar to what partners and members of multiple-member LLCs receive. This form is used to report and pay taxes on the shareholder’s share of the S corp’s profits on their individual tax return.
Companies with a “C” suffix. Only C corporations are required to report their profits on their own tax returns rather than those of their owners or shareholders. The United States Corporation Income Tax Return (Form 1120) is submitted by a C corp.
The procedure for filing business taxes is the same regardless of the form you use. Each form has space for basic company information like name, address, tax ID, main business activity, and accounting method. Advertising, insurance, legal and professional fees, office expenses, rent, repairs, supplies, taxes, utilities, and salaries are just some of the common business income and expense categories that can be entered in the form’s corresponding boxes. An additional space is available for you to detail any out-of-the-ordinary expenditures you may incur.
You can minimize the stress of filing your taxes by using tax preparation software or hiring a certified public accountant (CPA) or Enrolled Agent to do it for you.
The third step is to submit your paperwork before the due date.
Dates for submitting various tax forms vary.
Generally, Form 1120 for C corporations and Schedule C for sole proprietors and single-member LLCs are due on April 15th. The due date is the 15th day of the fourth month after the fiscal year end for C corp taxpayers.
Most S corporations must file Form 1120S by March 15th, while partnerships and multi-member LLCs must file Form 1065 by the same date. The 15th of the third month following the end of the fiscal year is the filing deadline for companies that use one.
In the event that any of these dates fall on a weekend or holiday, the deadline will be moved to the next business day.
State income tax returns must not be overlooked. The tax deadline for most states is the same as the federal deadline, but some states don’t. Because of this, it’s important to collaborate with a licensed tax expert who is conversant with the regulations in your state. You can trust them to help you file your taxes correctly, claim all of your deductions and credits, and never miss a deadline.