Around 400,000 small businesses start up each year, and along with selling their product or service, new business owners face new tax filing requirements. There are various ways to file business taxes, depending on whether the business is structured as a pass-through business or incorporated.
Each business structure has its own tax forms and filing deadlines, but you don't have to become a tax law expert to file business taxes.
Step 1: Gather your business records
Calculating your small business tax liability starts with your business revenues and expenses. The best way to track your company's income and expenses is to use small business accounting software. There are several options out there, including QuickBooks, FreshBooks, and Wave. If you use one of these apps, gathering your tax records may be as simple as printing a Profit & Loss Statement.
Otherwise, you may need to gather copies of your business bank account and credit card statements, invoices, receipts, payroll records, mileage logs, asset purchase details, and other records documenting your business income and deductions.
Step 2: Use the right tax forms
The tax forms you use to report business income depend on how your business is structured.
- Sole proprietorship. Sole proprietors don't file separate tax returns for the business. Instead, business income and deductions go on Schedule C, Profit or Loss from Business, which gets filed along with the business owner's personal tax return.
- Partnership. Partnerships file a tax return using Form 1065, U.S. Return of Partnership Income but don't pay taxes directly to the IRS. Instead, each partner receives a Schedule K-1, Partner's Share of Income, Deductions, Credits, etc., reporting their share of the partnership's profit or loss, which they use to complete their personal tax return.
- Limited liability company (LLC). LLCs file business taxes in several ways. The IRS treats LLCs with only one member, also known as single-member LLCs, like sole proprietorships. Income and expenses from the business go on Schedule C of the owner's personal tax return. LLCs with more than one member, also known as multiple-member LLCs, file the same form as partnerships: Form 1065. LLCs can also elect to be taxed like S corporations or C corporations.
- S corporation. S corporations file federal income taxes using Form 1120S, U.S. Income Tax Return for an S Corporation. Similar to partnerships and multiple-member LLCs, S corp shareholders receive a Schedule K-1, Shareholder's Share of Income, Deductions, Credits, etc., which they use to complete and pay taxes on business profits on their personal tax return.
- C corporation. C corporations are the only entities that pay federal income taxes directly rather than via the owner or shareholder's personal tax return. A C corp. files Form 1120, U.S Corporation Income Tax Return.
Whichever form you use to file your business taxes, the process is similar. Each form has a section for providing basic information about your business, including your business name, address, tax identification number, principal business activity, and accounting method. It also has boxes to enter common business income and expense categories, such as advertising, insurance, legal and professional fees, office expenses, rent, repairs, supplies, taxes, utilities, and wages. If you have any expenses that don't fall into the categories provided, there's also a section to list those expenses separately.
Using tax preparation software or outsourcing your tax filings to a CPA or Enrolled Agent will make the process as painless as possible.
Step 3: File by the deadline
Different tax forms have different tax filing deadlines.
- Schedule C for sole proprietors and single-member LLCs and Form 1120 for C corporations are generally due on April 15. For C corp taxpayers with a fiscal year-end, the deadline is the 15th day of the fourth month following the fiscal year-end.
- Form 1065 for partnerships and multiple-member LLCs and Form 1120S for S corporations are generally due on March 15. For companies with a fiscal year-end, the filing deadline is the 15th day of the third month following the fiscal year-end.
If any of those deadlines falls on a weekend or holiday, the deadline shifts to the next business day.
Don't forget your state income tax return. While most states follow the federal tax filing deadline, some don't, and each state has its own forms and tax rules. For that reason, you should work with a certified tax professional who is familiar with the laws in your state. They can ensure you fill out the right forms, take advantage of every available tax deduction and credit, and never miss a tax filing deadline.