"Your account is credited with XXX from ABC."
Updates like these can often make you smile!
However, things become trickier when you're required to file your business tax returns annually. The IRS website is packed with jargon and daunting information to take your mind for a spin, making tax filing seem impossible.
Luckily, you can give yourself a much-needed break from these accounting and tax filing agitations. In this blog, we cover detailed step-by-step instructions for the small business tax filing process.
Before beginning the tax filing process, gather your identity proofs and documents in an accessible spot. Some of the standard papers required for filing US business taxes are:
After collecting the standard tax documents required by the IRS, it's time to fill in your details in the tax form that syncs with your business type.
If you run an independent business or hold a single-member Limited Liability Corporation (LLC), you can file your taxes as a sole proprietor under Schedule C, Profit or Loss from Business in Form 1040.
Here are the documents required to file Schedule C:
Schedule C is a two-page form that you should attach with your personal income tax return.
It covers your personal information and records your revenue, expenses, accounting methods, and other case-by-case expenses that you're eligible to claim for refunds in a particular year.
While different partnerships are allowed to operate under US law, they must file their small business taxes through the same route.
If your business structure falls under the partnership category, you need to file Form 1065. Each member of the partnership or LLC must file Schedule K-1 with their personal income tax statements.
The entities should report their net income and other relevant financial information using Form 1065. In addition, Schedule K-1 should register individual members' share of profit/loss over the tax year.
If your small business or LLC is an established corporation, you must file taxes with Form 1120 along with your personal income tax return. Form 1120 is similar to Schedule C but is more complex in detail, requiring the expertise of a licensed professional.
Thanks to the Tax Cuts and Jobs Act of 2017, corporate income tax rates dropped from a whopping 35% to 21% in the US. Keep these revised rates in mind when filing your returns this year.
S Corporations, or Small Business Corporations, should file their taxes with Form 1120-S. While the corporation files its taxes for the year this way, stakeholders need to report their profit position with Schedule K-1 Forms (attached to their personal income tax return).
If your business hired an independent contractor, gig workers, or self-employed individuals and paid them a minimum of $600 in a year, you must file Form 1099-NEC.
This relatively newer tax document is tailored for reporting nonemployee compensation and consists of five key parts to pay close attention to. This form is not downloadable on the internet; you need to order one from the IRS.
However, as an independent contractor, if you have registered yourself as a C or S Corporation, skip filing the 1099-NEC.
For years, people have been filing their taxes on hard paper, attaching the required documents, and mailing them to the nearest federal office from their location.
However, the dynamics of filing taxes have been modified with the introduction of digital mediums in the last couple of years. Now, with the pandemic compelling people to stay at home and accelerating the digital boom, it's time to file business taxes online.
Explore the following two online tax filing methods and pick the one that suits your case:
The IRS provides small businesses a free service to file their federal income taxes online. They have signed up for a private-public partnership with 13 approved providers who provide their accounting software services at zero cost.
This automation frees you from the stress and frustration of making calculations, re-checking them, and then sending the same to the IRS.
If your adjusted net income is below $72,000 annually, you qualify for this program. While the basic features are offered at $0, more advanced features are available at reasonable costs.
The Free File Fillable Forms are electronic versions of the paper tax forms, requiring you to manually enter and check all details by yourself. This form allows you to only file your federal form for the current tax year.
Organizations earning more than $72,000 per year are eligible for this online service. Ideally, experienced taxpayers who are comfortable filing their business taxes without guidance should opt for this electronic form.
Sometimes, due to factors outside your control, you might miss out on the tax deadline by a couple of days.
So, what do you do next? Apply for the tax deadline extension!
While this extended window gives you some room to breathe, it's better to file small business taxes on time to avoid paying pocket-burning penalty fees and interest charges.
Filing taxes implies following strict deadlines. As an employer in the United States, you're accountable for:
Usually, the tax season takes up the first quarter of a new year, with the deadline nailed at April 15th always. However, last year, the pandemic pushed the federal tax-filing deadline to July 15th.
Different tax forms have other deadlines, but they all fall under the April-May time frame. As an employer, you should aim to roll out your employees' W-2 forms before January 31st each year.
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