"Business taxes" can be intimidating to both the first time entrepreneur and the active, experienced small business owner.
Often, the proprietor is often splitting attention between operations, marketing, growth... and then their "back-end" processes, like accounting.
Proper accounting is a full-time component of a business' overall health and functioning.
If you’re generating sales, being contracted for services, and your business is active and moving, it’s common to stack up matters that don’t have an immediate deadline --putting them on the back burner in favor of immediate business needs and activities.
This is why upon growth, a successful business is organized departmentally for coverage on every front. You can fully focus your attention on marketing and/or day-to-day operations if you allocate for proper financial record-keeping and management.
To begin, you need to gather all of your business-relevant information and records.
You’ll start with the basic critical elements for identifying your return needs:
Taxpayer/Owner(s) Info:
SSN
Current Address
DOB, Dependents
Tax Status...
Prior Year Tax Return
Company’s FEIN/EIN
EIN Letter from IRS
IRS "Identity Theft" PIN
If any received
Any IRS notices/letters
It's important to confirm the type of tax return the IRS expects your business to file. You can confirm this by reviewing your original EIN Letter issued by the IRS (Federal).
A "Form Type" (1040, 1065, 1120) will be printed at the bottom of the letter, along with its expected due date.
If you have filed Form 2553 to be elected as an S Corporation, you should have received another letter with the IRS's approval, with a due date for your first 1120-S.
Following this, you will need to collect everything you have that’s related to your total income and business-related expenses.
Please Note: if your business is not incorporated (an S Corporation or C Corporation), you are not preparing a "separate" tax return for your business!
Many new business owners have a general first impression that “Business Taxes” are a new, separate thing from their "personal" Income Tax Return.
"Business Taxes" here suggests Income & Self-Employment Taxes, at the annual filing time we're all familiar with. However, there are also Sales Taxes, Payroll taxes, local City taxes, and Estimated IRS Payments -- which often get overlooked or lumped all-together.
In businesses that aren’t a Corporation or Partnership (LLC, Sole Proprietors, Independent Contractors), business income is reported on its owner's Individual Income Tax Return.
Corporations are considered a legal separate entity from its owner: paying its own taxes on a separately filed return. The officer(s) receive a special form from the company's 1120 to prepare their Individual Returns with.
Partnerships split business income according to its original Partnership Agreement, and also prepare its taxes on a separately filed return. The partners receive a special form from the company's 1065 to prepare their Individual Returns with.
You should NOT be filing an Individual Income return before preparing business income, expenses, and tax info. If you do, you'll be doing this later when paying for an Amendment.
The “main” or keystone Form all U.S. taxpayers should be familiar with is IRS Form 1040, or the U.S. Individual Income Tax Return.
This form reports essential taxpayer information:
Personal information (current)
Filing Status
Dependency Status and Dependents
Wage/Withholding and other Income
Standard Deduction or Itemized Deductions = Taxable Income
Tax Refund or Amount Owed to the IRS
Your Signature
The Schedule C, or “Profit or Loss From Business,” is the second form which any self-employed person or small business owner should be familiar with.
This form reports income and loss from a business you operated, or a profession you practiced as a sole proprietor (1099 Recipients or independent contractors).
This form is just simple to do as your 1040 when you have a complete (and accurate) annual Profit & Loss Report. You just plug in your annual totals to corresponding fields.
This would be generated by using tax or bookkeeping software, and keeping good bookkeeping records throughout the year.
Real Estate Investing and/or Rental Income is also a popular income stream among our client base. These taxpayers must be familiar with the Schedule E, or “Supplemental Income and Loss."
The income you make from rental properties you own outright should be reported here. If the property is owned via an LLC, you’d report that income in the Schedule C (since it’s legally owned by the business).
If in a Partnership or an S Corporation, this is where you’d report your share of earnings from your Schedule K-1 (originating from the 1065 / 1120-S, separated and sent to you).
From here, you’re adding any additional tax forms received during the year: 1098 various 1099s, and etc.).
Their format is immediately recognizable; you'll want to hold onto them once issued any by mail -- especially if due a refund!
The standard Due Date for Income Tax is April 15th. For pass-through entities, it's March 15th!
In closing again, this process is fed by proper accounting and bookkeeping. If your records are clean and organized, you can print financial reports January 1st, and be ready to go!
If you do not have a system in place, you could be one of many who make it harder on themselves by waiting until TAX TIME (a full year) to hastily organize forgotten or lost information.
This is how many leave well-spent money on the table, or how mistakes happen. An OUNCE of prevention today is worth TWO POUNDS of the cure, tomorrow!
