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How to File Business Taxes

How to File Business Taxes

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Entrepreneurship can be exciting and rewarding, but the process also comes with some unique challenges.

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Entrepreneurship can be exciting and rewarding, but the process also comes with some unique challenges. Business owners soon realize that starting a business requires several sets of skills, including proper financial management. Staying on top of taxes is one of the main considerations when it comes to a company’s earnings.
As many entrepreneurs learn when exploring how to set up their company, the business structure helps determine how taxes are paid. Below is a breakdown of business structures with general corresponding IRS tax form information:
Sole Proprietorship:
Form 1040, U.S. Individual Income Tax return. Taxes on profits and losses are paid via the owner’s personal tax return. Note that a Schedule C is needed to show business profits or losses. Schedule ES and Schedule SE may be filed if Estimated Tax and/or Self Employment taxes are required. Know that estimated taxes will need to be paid quarterly if the business’s tax liability is expected to exceed $1,000 for the year.
Form 1065, U.S. Return of Partnership Income. This form is for an information return; it merely reports on things like income, gains, losses, etc. Partnerships don’t pay taxes on income; the business’s profits and/or losses “pass through” to individual partners via their own tax returns. Be aware that Schedule K-1 from Form 1065 will likely need to be filed for estimated tax purposes.
Form 941, Employment taxes, if applicable. Usually this form is needed by partnerships if the business has employees other than the owners.
Limited Liability Corporation (LLC):
LLCs can be designated as partnerships or corporations. Therefore, the options for filing income and other taxes are varied. For example, if the LLC is a partnership or owned by just one person, then the taxes are filed with each individual’s tax return on Form 1040. But, if the LLC is a corporation, the taxes are reported and paid via Form 1120 or 1120-S.
If a business owner’s LLC needs to change from a partnership to a corporation, then Form 8832 must be filed with the IRS. There are regulations in regard to the timing of a change, so plan accordingly and know that this type of transaction won’t be completed quickly.
It’s also important to note that different states can impose their own LLC statutes. When a business is set up as an LLC, it’s helpful to consult a local tax expert.C Corporation or S Corporation:
Form 1120, U.S. Corporation Income Tax Return. Businesses use this form to show general information like income, gains, losses, deductions, etc. This form is also used to figure tax liability which is an important factor in managing estimated tax obligations.
Form 1120-W, Estimated Tax for Corporations. According to the IRS, most business ownership earnings from corporations require estimated tax payments. Payments should be made quarterly to the IRS; check for the most updated due dates and form requirements.
Form 941, Employment taxes, if applicable. This form may be required for agricultural employees and Form 940 may be needed for any Federal Unemployment tax that is owed.
The above is an overview of tax forms and information that the IRS requires from the different business structures. Regardless of how a business is set up, there are important tax considerations to manage throughout the year. Be sure to keep up with accurate bookkeeping so things like quarterly estimated tax payments can be processed on time.
Once the financial reporting details are in place, how does a business owner accomplish the tasks of filing the IRS forms and sending in payments? Realistically, an owner with a sole proprietorship company can usually manage his or her own business taxes. However, LLCs, Partnerships and Corporations have more complex tax rules. Entrepreneurs with these types of business entities would be wise to employ a CPA or tax attorney that could take care of filing IRS paperwork and payments.
Still not convinced that hiring a financial guru to oversee tax information is worth the money? Consider this fact: A company doing business as an S Corporation can have ordinary income left over in the business and not accrue a FICA taxation. This can be a big benefit and a C Corporation does not enjoy that exact same rule. This is just one example of the intricate tax rules and laws that exist for different business entities.
The fact is that it’s nearly impossible for a business owner to be aware of the possible tax benefits and/or penalties that can be applied to his or her business. Consider consulting with a tax expert; check for recommendations.

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