Whether you’re new to being a small business owner or you’re a veteran, filing taxes as a business owner each year can quickly turn into a conundrum. With everchanging tax laws and forms to fill out, the process can feel daunting — but it doesn’t have to.
We’re here to help you learn how to file taxes as a business owner. Read on to learn about the entire process.
Types of Taxes
Typically, small business taxes are broken down into three main levels — federal taxes, state taxes, and local taxes. The largest portion of your taxes is going to go to the IRS. State and local taxes are dependent upon where you live, so it’s best to check with your specific state and county or speak with a professional before moving forward.
There are six main components of federal taxes for you to consider
- Income tax: Based on the income your business earns
- Self-employment tax: Covers social security and Medicare
- Employment tax: AKA payroll tax; only applies if you have employees. Accounts for taxes you deduct from each employee’s paycheck.
- Excise tax: Only applies if your business is involved with certain goods and services like fuel, air, and heavy transportation, or tractors.
- Sales tax: None at a federal level, but 45 states require you to calculate and deduct taxes for goods.
- Property tax: Only applies if you own commercial property, land, or real estate.
If that sounds like a lot of money you owe, remember that deductions may help reduce that number significantly.
What Are Potential Tax Deductions?
Here are a few examples of tax deductions you can claim:
- Home office costs
- Business meals and work travel expenses (including conferences you attend)
- Business insurance
- Work-related car use
- Retirement contributions
These are just a few examples, and a tax professional can help you find even more.
It Depends On Your Business Structure
The next step is to gather any and all records you need for filing. The documents you need are going to depend on your business, but one thing stays the same for everyone: make sure you keep receipts and/or proof of payment.
The forms we’re about to mention are all available on the IRS website, along with instructions.
If you’re a sole proprietor, you’re going to need a Schedule C or Schedule C-EZ and a Form 1040. You’re also going to pay quarterly tax payments (more on that later).
Partnerships file a Form 1065. A partnership sends Schedule K-1, Tax Credits, Partner’s Share of Income, and Deductions out to any and all partners.
The partners then use Schedule K-1 to file their own tax returns.
C-Corporations and S-Corporations
If you’re a corporation, then you use Form 1120 to file corporate taxes. If you’re an S-Corporation, then you file Form 1120S.
A limited liability company (LLC) is going to file based on how the business itself is taxed.
If you want to file as a corporation, then you use Form 1120. Single-member LLCs, however, file a Schedule C. Multiple-member LLCs file Form 1065.
Know Your Due Dates
Remember those quarterly payments we were talking about earlier? These payments are going to cover social security and Medicare taxes along with your income tax. These payments are due on April 15, June 15, September 15, and January 15 (of the following year) and are made directly to the IRS.
When it comes to filing taxes, though, the due date depends on your business structure.
For sole-proprietors, single-member LLCs, and corporations with a fiscal year ending on December 31, it’s April 15.
For S Corps, partnerships, and multiple-member LLCs, it’s March 15.
Extensions for these deadlines are a possibility. If you need to file for a business tax extension, then you have to do so before the deadline.
Making Quarterly Payments
When it comes to making those quarterly tax payments, you have two options: pay ahead of time or make the quarterly payments.
If this is the first year your business is open, then it’s best to make the quarterly payments. If this isn’t your first year, though, then you can opt to make one large estimated payment at the beginning of the year. The estimate is based on how much you made the previous year.
Be aware, though, that if you end up making and owing more, then you’re going to have to pay the difference.
This option can be great so you don’t have to worry about putting that money away throughout the year. If you opt for quarterly payments, just remember to set aside the necessary amount after each paycheck.
How to File and Pay
When it comes to filing your taxes, it’s best to do so directly with the IRS. E-filing is easier and faster than mailing, and it means you’re going to get your refund faster.
If you use online tax software, it’s more than likely going to have the ability to file with the IRS (and pay your taxes) for you, and so will a tax expert.
If you don’t have all the money you need to make your payment in full, it’s also possible to break it up into smaller chunks, though at least one-third will still be due when you file, especially if you’re using online software.
Filing Taxes as a Business Owner Doesn’t Have to Feel Daunting
The most important part of all of this is to remember that filing taxes as a business owner should never feel daunting or overwhelming. It’s important that your taces are accurate, so if you feel the need to take a break then you should!
If you ever have questions or concerns that the internet can’t answer, be sure to get in touch with a tax or finance professional. They’re going to be able to help you take a more tailored approach to your finances.
Remember, though, that we’re here to help with other aspects of your startup as well! Apply for the School for Startups Program today to get started.