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- Tips for a Small Business Owner Filing Your First Tax Return
If you're a newly established small business owner, chances are that you will be filing your very first tax return. Tax code can be complex. We’ve outlined helpful tips for your reference so you can file on time and submit the right paperwork.
Of course, not every entrepreneur has the time or knowledge to correctly file business taxes. It’s a best practice to hire an accountant or another financial professional to help. We’ve included tips on how to hire the right help for tax season.
What Does it Mean to File a Business Tax Return?
A small business tax return is similar to a personal tax return. Business tax returns report a company's income, tax deductions, and tax payments. All businesses, no matter what the structure, are responsible for business tax filing. All business tax returns must be filed annually with the IRS to calculate your business's tax liability.
Steps to file business taxes
1. Collect your records
Don’t find yourself surrounded by paperwork and receipts when tax time rolls around. Whether you hire a professional or DIY, organizing expenses and other required paperwork online throughout the year will make this process a breeze compared to the old paper method.
2. Fill out forms
Determine the correct IRS tax form. You always need to report your business earnings to the IRS and pay taxes on them, but choosing the right form to report earnings depends on how you operate your business. If you need more time, consider filing a business tax extension. If you’re unable to pay what you owe, you can apply for an IRS payment arrangement.
3. Pay attention to deadlines
If you don’t pay the correct taxes or pay on time, you could get hit with penalties and fines. Accountants or other financial experts can let you know the filing details early on so that you can meet the deadlines.
Why Your Business Structure Matters
The first step to preparing to file business taxes is to determine what form to fill out and submit. After you have collected all of your financial documents it is time to determine what forms you need to complete and submit. The correct form depends on your business structure, and here’s a rundown of structures.
1. Sole proprietorships
Sole proprietors need to file two forms to pay federal income tax for the year: Form 1040, the individual tax return reporting personal income, and a Schedule C, which reports business profit and loss.
The partnership and partners both 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. Use Form 1065, U.S. Return of Partnership Income.
A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. They can also take special deductions. A corporation conducts business, realizes net income or loss, pays taxes, and distributes profits to shareholders. Use Form 1120, U.S. Corporation Income Tax Return.
S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level. S-Corps use Form 1120-S, U.S. Income Tax Return for an S Corporation.
5. Limited liability companies (LLCs)
Different forms are used, depending on how the business is taxed. When you set up your business as an LLC, you can choose if you want your business to be taxed as a corporation. LLCs that are taxed as corporations must use Form 1120. Otherwise, single-member LLCs file Schedule C, and multi-member LLCs file Form 1065.
Here’s a list of important tax deadlines. Put these on the calendar as filing late can lead to fines and penalties.
If you’re sending your return via snail mail, the IRS considers it “on time” if addressed correctly, has enough postage, and is in the mail before the end of business on your filing deadline. Otherwise, you can e-file your return before midnight on your tax filing deadline day.
2022 Tax Deadlines
Here is a detailed list of every tax deadline in 2022.
January 3, 2022
Extended 2021 filing deadline for Hurricane Ida victims (Pennsylvania, New York, and New Jersey)
Individuals and businesses in Pennsylvania, New York, and New Jersey affected by Hurricane Ida have been granted an extension to certain filing deadlines.
If you are an individual or business that successfully extended your tax filing to October 15, 2021, you now have until January 3, 2022 to file.
Quarterly estimated income tax payments originally due on September 15, 2021 and excise tax returns due on November 1, 2021 have also been pushed to January 3, 2022.
January 18, 2022
The fourth (and final) estimated quarterly tax payment for the previous tax year is due today.
Note: Individuals, you do not have to file this payment due on January 18, 2022 as long as you file your 2021 tax return by January 31, 2022 and pay the remaining balance owed with your return (see Form 1040-ES for details).
January 31, 2022
Form W-2 filing deadline
If you have employees, you’ll need to fill out two copies of Form W-2 for each - one to the employee and one submitted to the IRS. If you work with independent contractors, Form 1099-NEC is due January 31, 2022.
February 28, 2022
Form 1099-MISC paper filing deadline. If you file electronically or miss this paper filing deadline, you can file on March 31, 2022.
March 15, 2022
Today is the deadline to file your S corporation tax return (Form 1120-S) or Partnership return (Form 1065).
March 15 is also the deadline to file for an extension for S corp and partnership tax returns.
March 31, 2022
Form 1099-MISC Copy A filing deadline. Some 1099s will require a 1099-MISC form. This includes payments to an individual or LLC of at least $600 during the year in rent paid, legal settlements, or prize or award winnings.
April 18, 2022 is “Tax Day”.
This is the deadline for individuals, sole proprietors, and C corporations to file their taxes. If your business pays taxes on a quarterly basis, the first 2022 estimated quarterly tax payment is due today.
April 18 is also the deadline to file for an extension for your individual tax return or an extension to file your corporate tax return.
June 15, 2022
The second 2022 estimated quarterly tax payment is due today.
September 15, 2022
The third 2022 estimated quarterly tax payment is due today.
If you are an S corporation or partnership that successfully filed for an extension, your tax return is now due.
October 15, 2022
If you are a C corporation that filed for an extension, your income tax return is now due. This is also the new due date for sole proprietorships that successfully received a tax extension.
State tax returns
Each state determines their own tax deadlines. Click here for a list of current state tax deadlines.
IRS Tax Refunds
Most tax filers will receive their refund within 21 calendar days after their return was received by the IRS. You can check your IRS refund status in five minutes by using the Where’s My Refund tool.
Do You Need to Hire Help?
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). However, not every small business owner is comfortable with tax law. The U.S. Tax Code is complex and you might need professional help. According to the legal website NOLO, the average business tax filing requires 24 hours for small businesses. Those hours can spike as your business grows. If you’re not a one man show, you might need to get other employees involved to gather documents or crunch numbers. This also counts as labor costs and pulls your employees away from the day-to-day tasks needed to run your business.
Do it yourself
Anne Ross is the owner of a small rental business in Los Angeles, CA. Because of the multifaceted nature of renting and returns, she was more comfortable doing taxes herself. “Nobody understands the business like I do. Doing my own taxes wasn’t fun but it was much less daunting than I thought.” Ross says doing taxes had another benefit she didn’t expect. “I felt empowered and I learned more about my business – where we could expand and where we should cut – than I would have if I turned everything over to an accountant.”
For more information to consider, review this article on the SmartBiz® Small Business Blog: Small Business Taxes: Self-File or Use a Professional?
Tax filing tips
- Keep adequate records consistently through the year
Keeping thorough and accurate records throughout the year will ensure your tax return is correct. If you have inadequate record keeping, you might leave legitimate deductions on the table or, worse, you could be putting yourself at risk for an audit. Invest in accounting software to keep track of all your income and expenses. Check out 12 Accounting Software Solutions for Small Business on the SmartBiz Blog.
Separate personal and business expenses
They always say don’t mix business with pleasure. In this case business owners should avoid mixing their personal and business finances. This is something you should be doing from the start. If you haven’t already, make clear definitions between your personal and business finances with separate accounts, this will give you better insight into what you are spending and where.
Take advantage of small business tax deductions
Pay attention to the small business tax deductions outlined in this article: 5 Small Business Tax Deductions. Note that this is not a comprehensive list and you should check with a tax professional or on the IRS website for complete information.
Deductions are also available for equipment purchases, business expenses, auto expenses, meal and entertainment costs, travel expenses and startup expense deductions.
Understand the difference between net and gross income
If your product costs more money to make than you charge for it, you will lose money regardless of how many units you sell. Small business owners often forget to take into account the difference between their net and gross income. For example, if it costs $100 to make your product and you sell it for $150, your gross income is $50. But after you deduct your expenses, your net income might drop to $10. Have a clear understanding of income so you can move forward financially.
Filing taxes also has a big impact on the ability to access affordable funding. Most lenders review income tax return transcripts from the IRS as part of the loan application process. Make sure you’ve filed correctly and met all deadlines to help present your business in the best light. It’s a best practice to work with your accountant to help you understand how funding will affect your tax obligations.