It’s challenging enough to run a small business without adding the intricacies of filing taxes year after year. According to experts, the best approach to tax season is simply outsourcing the heavy lifting to a tax professional. However, if money is tight and you’re in the early phases of your business, such a move can put your finances in jeopardy. If you’re filing business taxes on your own, the world wide web can be an incredible resource for all you need to know about fulfilling your civic duty.
Staying on good terms with the federal government is absolutely crucial for your business. In this post, we’ll discuss what you need to know about filing taxes as a small business owner.
Fill out the Correct Forms
As a small business owner, you will have to file business taxes. Which likely implies becoming familiar with a number of tax forms you’ve probably never heard of. It is of the utmost importance that you get a firm grasp on each of these forms, their purpose, and their application. The forms you’ll need to assess wholly depend upon the structure of your business.
The structure of your business falls into one of five primary categories:
- Sole Proprietorship: As a sole proprietor, you need to fill out Schedule SE for your self-employment taxes and Schedule C for business profit and loss.
- Single-Member LLC: Similarly, to a sole proprietorship, single-member LLC owners must fill out Schedule C, however you do not need to fill out Schedule SE.
- Corporation: You need to fill out Form 1120, also known as the corporate tax return.
- S-Corporation: S-corporation owners are required to submit Form 1120-S.
- Partnership/Multi-Member LLC: You need to fill out a Form 1065 for the business, and each individual partner or member will need to submit a completed Schedule K-1.
Create a Tax Date Deadline Calendar
With so much already on your plate, keeping track of the most important tax deadline dates can be another needle in the haystack of things to do. By creating a calendar that gives you a visual look at all upcoming tax dates on a month-to-month basis, you can stay on top of your filing duties and never miss a deadline.
Aside from the major April 15th “tax day” deadline for filing income tax returns, you will need to be aware of a few other key dates. Take a look below to assess which additional tax dates you might need to mark.
- Quarterly estimated tax payments: Quarterly estimated tax payments must be reported on Form 1040-ES. These forms are due by four different payment period deadlines. As of 2020, the due dates are as follows:
- April 15 for the payment period of January 1 through March 31.
- June 15 for the payment period of April 1 through May 31.
- September 15 for the payment period of June 1 through August 31.
- January 15 of the following year for the payment period of September 1 through December 31.
- Sales tax: Usually, sales tax filing deadlines for online sellers are scheduled for January of each year. It is recommended that you confirm with the state in which you work for deadlines of monthly, quarterly and annual sales tax returns. Some states also have varying deadlines depending on whether you register electronically or via mail
- 1099 and W-2 Forms: Do you have contractors or employees working for you in your small business? If so, you will need to supply your workforce with two key forms: Form W-2 and Form 1099-MISC. You will also need to send copies of these documents to the IRS by 31 January.
- S-Corporation and partnership tax return: March 16th is the deadline date for filing an S-Corp tax return or partnership return.
Separate Personal and Business Expenses
Separating your personal and business expenses can be extremely complicated to do if you are the sole owner of a company. Nonetheless, it is an important distinction to make as the IRS has stringent regulations regarding the use of personal expenses as company deductions. For instance, if you use your car for both personal and business purposes, you will be able to claim usage as both personal and business. However, if you plan to do this, you need to maintain a detailed record of the business use of the car.
Your investments are bound to the same standard. To keep corporate expenses away from your personal finances, consider opening an independent bank account.
State and Local Taxes on Businesses
Depending on where you reside, you may also be required to pay city and state taxes. The types and rates of taxes you are subject to pay vary based on location. In total, there are three dominant state and local taxes to be aware of: state income, property, and sales tax.
- State income taxes: Unless you live in one of the eight income-tax-free states, you will owe state income taxes.
- Property taxes: If you operate your business on purchased commercial property, you will be required to pay property taxes. These taxes are usually assessed at the county or city level.
- Sales taxes: If you sell goods or services, you’ll be responsible for collecting and reporting sales taxes—unless you are located in Alaska, Delaware, Montana, New Hampshire, or Oregon.
Track Deductible Expenses
Tax deductions can help you save money on your final tax bill and allow you to keep more money in your pockets. However, if you plan to take advantage of your eligible deductions, you will need to track them carefully. Common business deductible expenses include:
- Travel expenses
- Advertising costs
- Business insurance
- Office rent
- Office supplies
- Contract labor costs
- Office supplies
- Legal fees
Keep Your Focus on the Future
If there’s anything 2020 has taught us, it’s that hindsight really is truly 2020. Filing taxes is an inevitable truth and duty you’ll be expected to fulfill as a small business owner—and with time filing gets easier. However, it only gets easier if you’re able to plan well and stay ahead of the proverbial tax curve. Using this guide, you’ll be perfectly equipped with the knowledge you need to tackle tax season with seamless ease.
About the Author:
Jacob Dayan graduated with a Bachelor’s in Business Administration from the University of Michigan’s Ross School of Business. He began his career as a financial analyst at Bear Stearns’ industry leading Financial Analytics and Structured Transactions group. In 2010, he co-founded Community Tax LLC, a tax company dedicated to helping customers nationwide with tax resolution, tax preparation, bookkeeping and accounting services. As CEO of Community Tax, Jacob Dayan has assembled a strong team of attorney practitioners, CPAs and enrolled agents to deliver superior customer service and expected results.