Filing small business taxes can seem daunting, but breaking it down into steps can make the process more manageable. The exact process can vary depending on your business structure (sole proprietorship, partnership, LLC, corporation, etc.), your location, and the specifics of your business operations.
Here’s a general guide to help you get started:
Understand Your Business Structure
Your business structure affects how you report income, expenses, and how you file your taxes. Common structures include:
- Sole Proprietorship: You report business income and expenses on your personal tax return (Schedule C).
- Partnership: The partnership reports income and losses on Form 1065, and each partner reports their share on their personal return.
- Corporation (C Corp): The corporation files its own tax return using Form 1120.
- S Corporation: Files an informational return on Form 1120S, but income and losses are passed through to shareholders’ personal tax returns.
- Limited Liability Company (LLC): Depending on the number of members and elections made, it can be taxed as a sole proprietorship, partnership, or corporation.
Based on this information, you can choose the right option for your tax-return software. You can also choose to work with an accountant who is an expert in filing taxes. In this case, most of the work load is off your shoulders.
Gather Your Documents
Whatever option you choose: accountant or DIY tax-filing, you will need to have all your documents in place BEFORE you start, so that you don’t waste time during filing.
Ideally, either use a digital payment system such as Finli (as we allow you to download ALL your account activity with 1 simple click), or have a folder in your home/office with all your financial records.
Just store any new receipt or payments you collect year-round so that the workload is lighter when tax-season rolls around.
When preparing to file, make sure to collect all necessary financial records including:
- Income statements (Profit & Loss reports)
- Balance sheets
- Payroll documents
- Bank and credit card statements
- Receipts for expenses, such as office supplies, utilities, and advertising
- Records of any estimated tax payments made during the year
Understand Your Tax Obligations
Know which taxes you need to pay. These may include:
- Income Tax: Based on your business’s profits.
- Self-Employment Tax: For sole proprietors, partners, and LLC members.
- Payroll Taxes: If you have employees.
- Sales Tax: If you sell physical products or certain services, depending on your state.
If you are not sure, consult with an accountant.
Choose Your Accounting Method
Decide whether you’ll use cash or accrual accounting:
- Cash Method: You report income when you receive it and expenses when you pay them.
- Accrual Method: You report income when it’s earned and expenses when they’re incurred, regardless of when money is exchanged.
File Your Taxes
This piece is pretty self explanatory – you just need start the filing process! After you’ve gathered all your documents and looked into your accounting software, you can easily add your income and expenses. Based on this, you are ready to:
- Prepare Your Tax Return: Use the appropriate forms based on your business structure. Consider using tax software or hiring a tax professional to help.
- Submit Your Forms: File your taxes by the due date (usually April 15 for personal taxes and March 15 for many businesses, but extensions are available).
- Pay Any Taxes Owed: Ensure you pay any balance due by the filing deadline to avoid penalties and interest.
Consider Quarterly Estimated Taxes
If you expect to owe tax of $1,000 or more when your return is filed, you could make estimated tax payments throughout the year to avoid penalties. It’s an easier way to handle tax payment, when you break it down into several “chunks”.
Keep Records
Maintain detailed records of income, expenses, and tax payments for at least seven years in case of an audit. This is a good habit to start, even if you failed to do it properly this year.
Again, set up a space in your office or home and start gathering your financial papers every time you encounter one. If you want to take it one step further, you can even create monthly filing systems (if you have many invoices/receipts).
While it seems like a waste of time, you will thank yourself when tax season starts.
Stay Informed on Tax Changes
Tax laws can change, so it’s important to stay updated on any changes that might affect your business. Not knowing the law doesn’t protect you from the consequences of not abiding by it, so make it a habit to track some good personal finance websites at least on a weekly basis.
You can always find out what’s new in the PF niche by reading the resources in the Learning Center, as our editors constantly provide small business finance tips and news.
Additional Tips
- Deductions: Understand what business expenses you can deduct to lower your taxable income.
- Tax Credits: Look into any tax credits for which your business might be eligible.
- Professional Help: Consider consulting with a tax professional or accountant, especially if your tax situation is complex.
This guide provides a general overview, but tax filing can be complex, and requirements can vary widely. If needed, refer to the IRS website or consult a tax professional for advice tailored to your specific situation.
How much does a small business have to make to file taxes?
A small business must file taxes if it earns more than $400 in net income. This threshold applies to sole proprietorships, independent contractors, and freelancers. For corporations, any amount of income triggers the need to file a tax return. Partnerships and LLCs must file an informational return if they have income or expenses, regardless of the amount. Always check current IRS guidelines or consult a tax professional for specifics related to your business structure.
Do I file LLC and personal taxes together?
If your LLC is a single-member LLC (SMLLC), you typically file its income and expenses on your personal tax return using Schedule C, as the IRS considers it a disregarded entity for tax purposes. However, if the LLC is treated as a partnership (multi-member LLC) or elects to be taxed as a corporation, it must file its own separate tax return. An LLC taxed as an S corporation files Form 1120S but passes income and losses to shareholders to report on their personal returns. Always consider consulting a tax professional for advice tailored to your specific situation.
How do I file taxes as self-employed?
As a self-employed individual, you file taxes by:
– Reporting Income: Use Schedule C (Profit or Loss From Business) to report your business income and expenses. This form calculates your net business income, which is then reported on your Form 1040.
– Paying Self-Employment Tax: If your net earnings exceed $400, you must pay self-employment tax (Social Security and Medicare) using Schedule SE.
– Paying Income Tax: Your total income, including net business income, determines your income tax liability on your Form 1040.
– Making Estimated Tax Payments: If you expect to owe $1,000 or more in taxes, make quarterly estimated tax payments to avoid penalties.
Can you get a tax refund if you own your own business?
Yes, you can get a tax refund if you own your own business. If your tax payments and withholdings throughout the year exceed your total tax liability, you may be eligible for a refund. This includes estimated tax payments, any withholdings from other employment (if applicable), and refundable tax credits. It’s important to accurately calculate income, expenses, and deductions to determine your actual tax liability.
