Being a small business owner means you have to keep track of your finances, especially when it comes to paying Uncle Sam on time. When it comes to filing your taxes for your small business, the process is going to be a lot different from filing your personal tax returns. If you have never filed your business tax before, we’re here to make the process as easy and digestible as possible. Or this might serve to you as a quick reminder if you’re already familiar with the process.
Here are 3 steps to guide your small business tax filing:
- Gather your financial documents
Do yourself a favor and organize any relevant business financials nicely tucked away inside your filing cabinets. Having some kind of accounting software will expedite the process.
Each type of business entity will require different documents, but here is a basic list of financial documents you’ll have to gather to start
- Last year’s tax return
3.Your balance sheets and income statements
- Business expenses
It will be much easier for you to calculate your business earnings and expenses using a spreadsheet or an accounting software, such as Quickbooks, Xero, Zoho Books, and the list goes on.
- Find and fill out the correct form
Although some forms may overlap between different business entities, you will have to choose the right form to file your small business taxes based on your type of business entity.
Before we get into the nitty-gritty detail, I want you to be aware that hiring an accounting firm or CPA to file your taxes on your behalf is also a good option (more on that later).
- Sole Proprietorship
Filing taxes under sole proprietorship is rather simple as anyone under this business structure will be taxed as individuals. It means you don’t have to pay separate taxes for your business, and the filing process will look much similar to that of personal tax returns.
You need to fill out a Schedule C or a Schedule C-EZ and attach it to your individual tax return on Form 1040. You’ll also be responsible for paying self-employment taxes, which includes Social Security and Medicare. You’ll use Form 1040 ES (Estimated Tax for Individuals) to calculate how much you’ll need to pay in self-employment taxes.
– Sole proprietorships must fill out Schedule C or a Schedule C-EZ and have it attached on Form 1040
Business entities registered under partnerships are operated by two or more owners.
Partnerships have to file Form 1065, an informational return used to report the income, deductions, gains, and losses from the business’s operations. However, the business itself does not have to pay any income tax. Each individual member in the partnership must include a Schedule K-1, which shows their individual share of the partnership’s income or loss.
– Partnerships must file Form 1065
– Each individual member has to include a Schedule K-1 on his or her personal tax return
- Limited Liability Companies (LLC)
LLC is a business structure that protects its owners, or members, from the company’s debts, liabilities, and lawsuit. If your small business operates as a single member LLC, meaning you are the only member, you can file your taxes as if you were operating a sole
proprietorship. If your LLC has two or more owners, you will file as a partnership. In either case, your business itself won’t be taxed.
– Any operating single member LLC will fill out a Schedule C or a Schedule C-EZ with their Form 1040
– If you’re in a LLC with multiple members, each individual member in the company will report a Schedule K-1 along with Form 1065
If you operate a C-corporation, just like LLC, you will not be responsible for the companies debts or liabilities. However, the profit of your corporation is taxed at a flat income tax rate of 21%. You can be taxed again if your corporate income is distributed as dividends to the corporation’s shareholders.
– Any business operating as C-corporations will file a Form 1120
– All shareholders in a C-corporation will be taxed on their personal tax returns (when the profit of a corporation is distributed as dividends)
If you’re a shareholder of an S-corporation, you will report your share of income and loss on your personal tax return. You will also fill out an informational tax return. S-corporations are very similar to sole proprietorships and partnerships when filing for taxes, meaning they avoid double taxation on the corporate income.
– An S-Corporation will file a Form 1120S, an informational tax return.
– Shareholders of S corporations report the flow-through of profit or loss using a Schedule K-1 on their personal tax returns.
- Don’t miss your Deadline
All types of small business entities must pay quarterly estimated taxes. Any business operating as a C-corporation will pay quarterly estimated taxes if the business expects to owe $500 or more in business taxes for the year. All the other types of entities must pay quarterly estimated taxes if the business expects to owe $1,000 or more. This means that you, as a small business owner, is responsible for keeping track of four deadlines when paying Uncle Sam.
To calculate the quarterly payment for your small business taxes, you’ll estimate your taxable income, taxes, adjusted gross income, deductions, and credits for the year. It may be helpful to look at your prior year’s federal tax return as a guide.
Once you’ve calculated the necessary numbers, you can use a Form 1040-ES in order to calculate your quarterly estimated taxes.
Your estimated taxes are due on four different quarterly dates throughout the year:
– April 15
– June 15
– September 15
– January 15