Through our business coaching, one of the things we hear at The Marketing Group is how do we prepare our small business for taxes? The first thing you should learn when filing your taxes is that it’s different from filing your individual taxes. Small business can file their taxes in various ways, and it just depends on whether you run your business as a sole proprietorship or as an LLC or corporation. Now if you know how you run your business, then you are one step in the right direction for being prepared. But here are some other ways to help you get prepared to file your federal taxes for your small business.
Collect your business documents
When you start a business, you should make sure you have all your business paperwork in one place, whether it’s in a file cabinet or backed up on your computer, just have it in secure and safe place. We recommend using a computer program or a spreadsheet to make calculating income and deductions a lot easier. As long as it’s accessible when it’s time to file your taxes, that’s the most important.
Find and fill out the right forms.
Depending on how you file will determine what forms you will need to report business income and expenses. The good news is you calculate your business income in similar ways to your personal taxes. Note that every small business needs to report their business earnings to the IRS and pay the taxes on them, no exceptions. The paperwork you use to report your small business earnings depends on how you operate it. Most small businesses operate either as a Sole Proprietorship or Single-member LLC, which means they’ll use a schedule C 1040 form to report all business expenses and income. When you use a schedule C 1040, you will attach it to your personal income tax return, i.e., your 1040.
If you file your business separately from yourself, then you are considered a C corporation, and you should use the 1120 form. If you are a closely held corporation and are taxed under subchapter of chapter 1 of IRS, then you would fill out the 1120 S form. If you have shareholders with your business, then you are considered an S Corporation. S Corporations, in general, do not pay any income taxes. Their corporations’ incomes or losses are typically divided and shared by its shareholders. These shareholders must report the profit or loss on their own individual income tax returns.
Pay attention to your business filing deadlines. If your business is Sole Proprietorship or a Single-member LLC, you are a Schedule C and are subject to the April 17th tax deadline. If you are taxed as a C-Corp or S-Corp, then your deadline to file is by the 15th day of the third month following the close of the tax year, which is March 15. Note that you cannot attach 1120 or the 1120 S forms to your personal income tax return to the IRS.
The Marketing Group knows that filing taxes for a small business can be overwhelming and at times just downright confusing. If you have questions about how to help get your business prepared for tax season or just general small business questions, feel free to reach out to our team. We are here to help, and we want to ensure your small businesses succeeds.