Tips for a Small Business Owner Filing Your First Tax Return

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.

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Why Your Business Structure Matters

The first step to preparing to file business taxes is to determine what form to fill out and submit. The correct form depends on your business structure. Here’s a rundown of structures and required tax forms.

Sole proprietorships

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

Form 1065, U.S. Return of Partnership Income. 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.

Corporations

Form 1120, U.S. Corporation Income Tax Return.

S-Corp

Form 1120-S, U.S. Income Tax Return for an S Corporation.

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 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.

Deadlines

Note: 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.

15th day of the fourth month after the end of your tax year if you own a corporation whose tax year ends on a date other than December 31. 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.

Extensions due to coronavirus pandemic in 2020: Most federal tax filing and payment deadlines from April 1, 2020, to July 14, 2020, are postponed to July 15, 2020. The postponements are automatic and apply to all taxpayers. You do not need to file other forms or call the IRS to qualify.

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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.

Hire someone to help with filling your business taxes

You might think you’re saving a ton of money by self-filing. But you need to count in the price of your time and labor. 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 understand the business like I do. Doing my own taxes wasn’t fun but it was much less daunting that 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?

Steps to file business taxes

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 will be a breeze compared to the old paper method.

Fill out forms

Determine the correct IRS tax form. You always need to report your business earnings to the IRS and pay tax on them, but choosing the right form to report earnings on 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, apply for an IRS payment arrangement.

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 all filing details early on so that you can comply and avoid trouble.

Tax filing tips

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 get-go. If you haven’t already, make clear definitions between your personal and business finances with separate accounts, this will give you a better vision on 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.

DISCLAIMER: The SmartBiz® Small Business Blog and other related communications from SmartBiz Loans® are intended to provide general information on relevant topics for managing small businesses. Be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed. Please consult a certified accountant or tax professional for further information.

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