How to File a Small Business Tax Return
Knowing when and how to file your business tax returns can feel like a daunting task. How you file, what forms you need to use, and what documentation you need to keep varies depending on the type of business entity you maintain. And the stakes are high. Failing to comply with your tax obligations can cause you to pay large penalties, which can be detrimental to new businesses.
In this article, we'll take you through what tax information you need to have, the forms you need to use to file your business tax forms, and how and when they need to be filed. We'll also touch on how using online software, like Skynova's accounting software, year-round can cut down on the last-minute scramble and the mountain of paperwork that tends to pile up.
Collect Your Records
Proper record-keeping is essential for small business owners, especially at tax time. When you file your tax return, you'll want to ensure you have all the documentation to back up whatever you put on your tax forms. This includes your taxpayer identification number and any financial records tracking your expenses and income.
Most customers use debit and credit cards to make payments. If you accept these payments, you'll not only want to keep the financial statements from your business bank account but also any invoices associated with the transactions. If you accept check payments, make sure to keep canceled checks and receipts. It's helpful to keep those with the ledgers you track expenses in. Expenses like internet services or electric costs can be tax-deductible, but you'll need to keep the invoices.
It's a good idea to keep up your record-keeping throughout the year, so you aren't scrambling when that tax deadline is looming. Using online software, like Skynova's accounting software, can keep you up to date with every transaction and help cut down on the paper cluttering your office.
Find the Correct Tax Forms
How you legally set up your business structure will determine the kind of tax form you need to submit. Most small businesses will report their profits and losses on a Schedule C form attached to their individual tax return. However, if you've set up your business as a C corporation or S corporation, you'll need a different set of forms. Partnerships or limited liability companies (LLCs) with multiple members will need an entirely different set of forms. This section will break down the business tax forms based on your business entity type.
To complete a Schedule C form, you will need to be ready with information on your business income, business tax deductions, and costs for any assets you acquired, like equipment or office space. If you have a home office for business use, you can also deduct that space.
The self-employment tax applies to anyone who has their own business and made over $400 for the tax year. There is a calculation you will use to determine your Social Security or Medicare contribution. You can then deduct half of the self-employment tax.
Because the sole proprietor doesn't have an employer withholding taxes, they must pay estimated taxes. The threshold is if you owe $1,000 or more in taxes. Estimated taxes make up for income taxes, Social Security, and Medicare taxes that would normally be withheld from a paycheck and are paid every quarter.
C corporations are the most common type of corporate designation. In the eyes of the Internal Revenue Service (IRS), they are their own entity and must pay business income taxes. Their shareholders are also taxed on any dividends they receive.
Corporations will need to file Form 1120. You'll need to be prepared to provide your basic information, including contact information, total assets, corporate income details, and costs. Additionally, if you have any dividends, tax credits, or capital gains, you will want to report those. And while you won't need to provide any backup documentation for your deductions, make sure you have proof available if the company is audited.
The basic form won't cover everything. In fact, some things you may want to deduct will require their own schedules. These include startup costs, insurance, payments made to contractors, and any work-related travel or meals.
Partnerships will need to use two forms to complete their federal taxes: Form 1065 and Schedule K-1. A partnership is not taxed directly. Instead, the partners will report their earnings on their personal income tax returns. Because of this, the partnership will use Form 1065 to report information to the IRS rather than pay taxes.
A Schedule K-1 form is then prepared for each partner to show the individual's profits and losses from the business. The partners will file the K-1 with their personal income taxes.
S corporations start as C corporations and then file to elect an S corp status with the IRS. This means they are treated essentially like other pass-through entities, where owners report profits and losses on their individual income tax returns. To file their taxes, S corporations must use Form 1120-S. The form and documentation you will need are similar to the C corporation form.
Even though your nonprofit is tax-exempt, you still likely need to file annually with the IRS. The forms you use to file are for informational purposes only, and they are known as the " 990 series." This is because there are several 990 forms you may use.
Small nonprofits — those whose receipts are $50,000 or less — will use the 990-N. Organizations with gross receipts under $200,000 and total assets of less than $500,00 will use the 990-EZ. Everyone else will use the traditional 990 form.
Regardless of which type of 990 your organization files, it's important to note that the form becomes public information and can be used by potential supporters of your organization once filed.
Limited Liability Company (LLC)
An LLC will pay taxes differently if it's a single-member LLC or a multi-member LLC. A single-member LLC will pay taxes the same way as a sole proprietorship. They will report their profit and losses on their personal income taxes using a Schedule C form.
If the LLC has multiple members, they will pay their taxes like a partnership. First, the LLC will file Form 1065 to share information with the IRS. From there, a Schedule K-1 is prepared for each member of the LLC to include on their personal taxes.
Fill Out Tax Forms
Filling out your tax forms requires time and patience. The forms mentioned will have instructions from the IRS to ensure you fill them out properly the first time. Make sure to review these instructions before you get started.
It also goes without saying that ensuring your forms are accurate before submitting them is an important step. Leave enough time to sit down and review them without distractions. Double-check your math, the specific information you've entered, and that you have the right documentation to support your information.
Submit the Tax Forms
When it's time to file your tax returns, you can do so through the mail or by e-file. Your tax forms will include instructions on where to mail the form to. If you decide to invest in tax filing software, the filing fee should be included. Likewise, if you hire a tax preparer, the filing fee should be included.
Make sure you know when the filing deadlines are for your specific business type. If you file your business taxes with your personal taxes, your filing deadline will be April 15. If you pay estimated taxes, you will file quarterly on Jan. 15, April 15, July 15, and Oct. 15. For C and S corporations and nonprofits, the deadline for your forms is dependent on when the end of your fiscal year falls.
Also, don't forget that submitting your federal taxes is not the only step. Make sure you know what your tax obligations are in your state and local area. Each state, city, suburb, or township has a different set of rules, and you'll want to know what they are and what the due dates are.
Manage Your Tax Forms and Accounting With Skynova
There are a few additional tips for managing your tax payments. First, know your deductions. For example, did you know that you can deduct a home office space or personal car use? Some deductions also can't be used at once and must carry over to future years. Make sure you don't lose track of those items. Most importantly, staying on top of receipts will help you calculate your taxes faster — especially if you need to pay estimated taxes.
The best way to ensure you have all the important documentation is by keeping up to date year-round. Skynova's accounting software can make it easy. We can also help you with everything from invoicing to maintaining your ledgers. Take advantage of our free business templates and other software products.