Two things are inevitable in life: death and taxes. While we’ve all experienced the process of filing our personal returns, if you’re a new entrepreneur, you have an additional world of processes needed to file for your business. To help you with this task, here’s everything you need to know to face this tax season head on.
How Much Tax Do Small Businesses Pay?
The first step in knowing what you owe in taxes is knowing what form of business you’re running. Business taxation differs based on the business’ structure. For review, the primary business structures include:
- Sole proprietorship
- Partnership
- C corporation
- S corporation
- Limited liability company (LLC)
For general taxation purposes, there are businesses who are non-distinct from the owners and businesses that operate as distinct legal entities. Sole proprietorships and partnerships fall into the first category, corporations into the latter. Install compliance signs to communicate various regulations and enforcements to your employees.
Know Your Deadlines
April 15th is tax day for the majority of the US population, the deadline for the majority of proprietorships, partnerships, and LLCs. However, for S-Corps, March 15th is the most common deadline. If you’re operating an S-Corp or an LLC taxed as an S-Corp, keep this in mind and have reminders at eye level using floor decals.
Stages of Tax Preparation
There are four stages for filing taxes for your small business:
- Gather all records of your financials over the previous year.
- Choose the appropriate IRS form for your business.
- Calculate the totals using a tax filing tool such as TurboTax or IRS Free File.
- Mail to the nearest IRS office. If your state does not participate in the Combined Federal/State Filing (CFSF) program, you will have to file with your state separately.
If you’re new to filing, your books are complex, or you just have a lot of questions, it can be helpful to hire a tax preparation company. Tax preparation companies can provide you with legal advice, and accurately file claim deductions and write-offs.
Gather All the Necessary Records
Before you fill out any tax form for your business and report your earnings, acquire all the reports that hold information on your business earnings and net expenditures. If you haven’t already, take the time to track all the transactions throughout the year and pair all relevant invoices and receipts to your statements. Always create backups of your records, or you’re one damaged hard drive away from losing your whole ledger.
Choose the Appropriate Form According to your Business
Once you have gathered your own numbers, the next step is to choose the right IRS tax form.
- For sole proprietorships, it’s easiest to report all business gains and expenditures on a Schedule C attachment to your personal income tax return. This also applies for single member LLCs.
- Partnerships and Multi-member LLCs which are taxed as partnerships, require a Schedule K-1 form to report partnership income.
- If your business runs as a corporation, or is an LLC designated as a corporation for taxation purposes, prepare a separate corporate tax return on Form 1120 for C-Corp and Form 1120S for S-Corp.
It’s important to note that additional forms may be necessary depending on form of income, investments, etc. Consult a tax professional to ensure you have all necessary forms.
Form Filling
Form filing can be done simply through one of the following processes:
- Sending all relevant files to your local IRS branch. On the IRS website or any IRS brochure, you can find which branch covers your region of the country.
- Utilizing the IRS’s online Free File tool to file electronically.
- Filing using 3rd party tax preparation software, such as TurboTax.
- Filing with a tax professional.
Once your taxes are filed, it’s time to pay your dues and move on to a profitable new year.
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