Being an entrepreneur is hard enough on its own, but now you also have to start thinking about taxes. No one likes doing their taxes, but it’s a necessary party of keeping your business running. However, knowing how to file for business taxes properly and which tax deductions you qualify for is a guaranteed way to get more money back in your tax return.
But unlike your personal taxes, filing your business taxes can get tricky. Different industries and business structures may be subject to different taxes. That’s why we put together this complete guide to help you learn how to file business taxes.
First, you should understand the different types of taxes that might apply to your business.
Types of Business Taxes
1. Income Tax
According to the IRS, all business structures – except partnerships – must file income tax returns every year. Partnerships don’t pay income tax, but these organizations are liable to file an “information return.”
Though most businesses file income tax returns annually, not all of them use the same form for filing. The tax form you submit depends on your company structure.
Likewise, the filing deadline also depends on your business structure - whether it’s a sole proprietorship, partnership, corporation, or S corporation.
2. Estimated Tax
If the amount of income tax withheld from your net earning is not enough, you may need to pay estimated tax payments. This tax type is used to pay not only income tax but also other taxes, such as alternative minimum tax and self-employment tax. In this case, if you don’t pay enough tax returns through estimated tax and withholding, you may be charged a fine or penalty.
Individuals, like partners, sole proprietors, shareholders, and S corporations, are responsible for paying estimated tax payments.
Also, don’t forget that you still need to file an individual income tax return with Form 1040.
3. Self-Employment Tax
Self-employment tax is mainly Medicare and Social Security tax for sole proprietors. Usually, you need to file for self-employment tax payments in addition to the Form 1040 if you meet the following conditions:
If your total earning from self-employment exceeds $400 If you work for a church or a certified church-controlled organization
For more details on self-employment tax, click here.
4. Employment and Payroll Tax
If you have employees in your business, you must pay an employment tax. This tax type falls into three categories, such as:
- Social security and medicare taxes
- Federal unemployment tax
- Federal income tax withholding
If you’ve been running your business for a while, you’ll know that you also need to report payroll withholdings quarterly or annually, depending on your business structure. An easy to use payroll app is a great way to accomplish this.
5. Excise Tax
Businesses that generate or sell specific products, including alcohol, tobacco, and gasoline. May need to file for excise tax. Likewise, brands that use certain commodities, facilities, or equipment and collect payments for particular services may also be responsible to pay excise tax payments.
How to File Your Tax Return
Now that you know about your tax filing responsibilities, the next step is to find out how to file for business taxes. There are several ways to prepare and file taxes, depending on your business type. Meaning, a sole proprietorship, corporations, and LLCs will all file differently.
Each entity needs a unique tax form on which you report your business expenses, income, and profit or loss. No matter which tax form you use, you usually evaluate your taxable income in similar ways.
Here several steps you need to take to successfully file your taxes.
1. Collect Documents
First things first, there are several documents you need in order to properly file your business taxes, like financial records and your taxpayer identification number
Rather than scrambling to gather all your records, keep track of all your transactions and invoices year-round with accounting software. It also makes it ideal for you to import data directly into your tax return, without the need of jumbling through lots of documents.
2. Choose the Right Tax Form
The next step is to pick the correct IRS tax form. The process of selecting the right form depends on your business structure. Each business structure uses a different form to report its profit or loss. Here are some of the different tax forms:
- Sole Proprietorships – Schedule C
- Single-Member LLCs – Schedule C
- Partnerships – Schedule K-1 & Form 1065
- Multi-Member LLCs – Schedule K-1 & Form 1065
- LLCs Taxed as Corporations – Form 1120
- Corporations – Form 1120
- S Corporation – Form 1120-S
Pick any of these tax return file forms depending on the type of business you’re operating.
To file your business tax return on time, you need to find out the due date of your return. Generally, the deadline to report your business tax varies depending on the business structure:
- Partnerships and S corporations: March 16, 2020
- C-corporations: April 15, 2020
- Exempt businesses: May 15, 2020
- The due date for partnerships and S corporation with extensions: September 15, 2020
- C-corporations with extension: October 15, 2020
In a worst-case scenario, if you cannot pay your business taxes, consider applying for an IRS payment arrangement.
The Key Takeaway
If you still have doubts about your business tax returns, consider consulting an accountant or tax professional. With extensive experience in this field, an expert can provide you with the best tax strategies to help you get the most out of your return this year.
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