Many taxpayers dread filing taxes. What if I make a mistake? Will my tax return lead to an IRS audit? If you are new to entrepreneurship, you might be worried about filing small business taxes for the first time. Read on to learn how to prepare for and file your small business tax return.
What is a small business tax return?
Like a personal tax return, a small business tax return reports information about a company’s income, tax deductions, and tax payments. All businesses are responsible for business tax filing. You must file your business tax return annually with the IRS to calculate your business’s tax liability.
Depending on your business and which deductions you want to claim, you may need to include supplemental documents during business tax filing.
For example, attach Form 8829, Expenses for Business Use of Your Home, if you are a sole proprietor claiming the home office tax deduction.
How to file a business tax return
Now that you know about your business tax filing responsibilities, you need to understand how to file business taxes.
Learn how to file taxes for business using the following four steps.
1. Gather documents for small business tax filing
The first step of filing taxes is knowing how to prepare business tax returns. Before you file your return, gather documents that will help you fill out the form.
You need the following information to file your return:
- Taxpayer Identification Number
- Financial records
To organize your records throughout the year, consider using online accounting software. By updating your books and organizing your records, you can prevent the beginning-of-the-year scramble of sorting through documents.
Taxpayer identification number
You must identify your business on your tax return. Include your business’s nine-digit taxpayer identification number (TIN) when filing returns. There are several types of TINs, including Social Security numbers and Employer Identification Numbers (EINs).
If you have employees or structured your business as a corporation or partnership, you must have an EIN. You can apply for an EIN through the IRS’s website.
Did you lose your tax identification number? First, look through old documents that might contain your TIN, such as a past tax return or statement. If you still can’t find your TIN, contact the IRS.
To file, you need complete financial records, such as financial statements and supporting documents (e.g., receipts).
Use your financial records to accurately report your business’s income and expenses on the tax return. Income statements, balance sheets, and receipts are some of the records you need to file your return.
Income statements show your business’s revenue and expenses throughout the year. Reference this sheet to fill out the income section of your tax return. And, use the listed expenses on the statement to claim write-offs, such as the business loan interest tax deduction.
Your small business balance sheet shows assets, liabilities, and equity. You must use your balance sheets from the beginning and end of the year to report your annual income from business operations on the tax return.
As you prepare your return, look for documents that support information in your books. Supporting documents are especially important in case of an audit. The more financial documents you can provide to backup your claims, the better.
2. Determine which tax form for small business you need
To file taxes, individuals file Form 1040, U.S. Individual Income Tax Return. What form should your small business file?
The business tax form you file depends on your company’s structure. Each type of business structure uses a different form to report their profits and losses.
Sole proprietorships must use Schedule C, Profit or Loss From Business, to file their business tax return. You must attach Schedule C to your individual tax return. Some small businesses can use a simplified version of Schedule C, known as Schedule C-EZ.
Partnerships file their business tax return using Form 1065, U.S. Return of Partnership Income. Both the partnership and partners must report business profits and losses to the IRS. The partnership distributes Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc., to partners. The partners then use Schedule K-1 to fill out parts of their individual tax returns.
Corporations file their business tax returns using Form 1120, U.S. Corporation Income Tax Return. If your business is structured as an S Corp, use Form 1120-S, U.S. Income Tax Return for an S Corporation.
Limited liability companies (LLCs) use different forms, depending on how the business is taxed. When you set up an LLC, you can choose whether you want your business to be taxed as a corporation. LLCs taxed as corporations must use Form 1120. Otherwise, single-member LLCs file Schedule C, and multi-member LLCs file Form 1065.
3. Know deadlines, filing methods, and more
To file a timely business tax return, you need to know when your return is due. Your business tax filing due date depends on your business structure.
Some years, the deadline falls on a weekend or holiday. If the tax return deadline falls on a weekend or holiday, your deadline is the following business day.
March 15: Partnerships and multi-member LLCs must file Form 1065 with the IRS and distribute Schedule K-1 to partners by March 15. S Corps must file Form 1120-S by March 15.
April 15: Sole proprietors and single-member LLCs submitting Schedule C must file by April 15.
Corporations that end their year on December 31 must also submit Form 1120 by April 15.
If you own a corporation whose tax year ends on a date other than December 31, your due date is the 15th day of the fourth month after the end of your tax year. However, if your fiscal tax year ends on June 30, you must file Form 1120 by the 15th day of the third month after the end of your tax year.
You can file your business tax return by mail or through the IRS’s e-file system. Depending on your business, you might be required to e-file. And, you can make tax payments through the IRS’s Electronic Federal Tax Payment System (EFTPS).
Filing extensions and payment arrangements
4. Consult an expert
Accounting for small business owners may still seem a bit intimidating. You might consider hiring an accountant or tax preparer to help you file your business tax return. An accountant can help you accurately file, deduct write-offs, and claim deductions.
Simplify the tax filing process with updated and accurate books. Use Patriot’s online accounting software to record business transactions. Then, pass along your organized file to your accountant. Try the software for free today!
This article has been updated from its original publication date of 11/29/2016.
This is not intended as legal advice; for more information, please click here.