Get Your Records In Order
Good tax preparation begins with recordkeeping. Before you start the process, collect all your relevant business records. Whatâs relevant, you ask? Depending on your type of business entity, youâll need different things, but start here:
- Personal information
- Last yearâs tax returns
- Employer Identification Number
Youâll also need to collect everything related to your earnings and expenses. On the earnings side, this could be:
- Invoices you sent to clients
- Records of any goods sold to customers
- Sales records that note money coming into your business
On the expenses side, collect receipts for any costs you incurred during operation. Think of the following things:
- Rent receipts for your small business
- Office supplies
- Mileage records
Different small business entities need to supply different information for their returns, so we created a small business tax checklist for each type.
And if you want to avoid the dreaded task of sorting through shoeboxes full of crumpled business-related papers, Bench can help. Our small business bookkeeping solution tracks your earnings and expenses throughout the year and keeps your records in our online app, so theyâre always accessible.
Understand What Taxes Are Required
Depending upon the nature and size of the business, a number of taxes are required. In general, a business could be subject to any or all of the following:
Payroll taxes are particularly important for a small business to pay attention to. Any business that has employees, regardless of the form of the business, will be subject to payroll taxes and failure to understand and follow the rules can be devastating to a business.
A business with employees is required to withhold from each employees wages each pay period the following:
Many states and localities have other taxes that must be withheld but that is beyond the scope of this article. The important point to remember is that the business is responsible for collecting and paying all these taxes and then filing a timely return as was mentioned above.
It is also important to remember that taxing agencies, especially the IRS, are very aggressive in making sure that payroll taxes are withheld, paid, and reported on a timely basis because they are held in trust by the employer and not their money. One of the worst thing a small business can do is to withhold these funds and not pay or file a return for them.
When Should You Do Your Own Business Taxes
The truth is, it largely depends on the type of business you have. There are multiple types of business structures that all require slightly different tax treatments, so the first place to start is establishing what you have:
- Sole proprietor / single-member LLC: This is what most gig and freelancers are. You operate under your own name and Social Security number, or are the only member of your LLC
- Partnership / multi-member LLC: This describes any business with multiple owners who have formed an LLC or partnership, but donât get taxed as a corporation
- S corporation: This describes a partnership or LLC that has elected to be treated as a corporation for tax purposes
- C corporation: This is a completely separate legal entity from its owners. It’s typically only formed by large companiesâ
âEach type of entity has its own IRS form and its own filing due date. To make things more complicated, the associated business taxes are either paid by the owner or by the business itself, depending on the structure:
Letâs take a peek at the structures that are easiest to go DIY on.
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What Tax Documents You Need To File Your Tax Return
Learning how to file small business taxes can entail a steep learning curve, especially when collecting necessary documents and filling out required tax documents. Regardless of your business type, youll want to save documents related to all business income and expenses to file your tax return.
This starts with collecting copies of financial business reports for the tax year, including your income statement, balance sheet, and cash flow statement. Youll need to provide documentation related to assets, documents accounting for expenses, loan information , and any other deductible expenses .
If you have employees, collect payroll data for payroll taxes. Dont forget to provide any information on stocks and bonds purchased, held, or sold by the business. Since this is your first time filing small business taxes, you obviously wont need to provide tax returns from the previous year, but this will be necessary in years to come.
You also need to know which tax forms to file. As a sole proprietor or member of a partnership, youll use Schedule C and 1040 forms. If you have a single-member LLC, youll file a Schedule C form and possibly form 8832, if youre eligible. Multi-member LLCs will use a 1065 form and a Schedule K-1 form on personal tax returns.
An S-Corp will use form 1120-S , while shareholders file form 2553. A C-Corp will use form 1120 or 1120-A. Members of cooperatives use forms 1099-PATR and 3491 Consumer Cooperative Exemption Application.
Use The Right Systems
Whether you opt for paper-based or online, choose a system that suits your business.
- Talk to others and try a few systems to work out what’s best for you and your business there are plenty of online software options that can save you a lot of time at not much cost. Or opt for a paper-based system.
- Consider getting expert help to get started knowing you’ve got everything set up properly will save you time and stress down the road.
Some accounting systems offer a service for businesses to file GST and payday filing returns directly to Inland Revenue. GST, payroll, and other taxes can also be paid online using Inland Revenues myIR service.
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Determining Which Taxes Apply To Your Business
With a little bit of planning, you can file your business taxes accurately and on time. To start, youll need to understand which taxes your business will be responsible for paying. Location, industry, number of employees and other factors will determine your tax burden.
We understand that filing small business taxes for the first time can be overwhelming. Its not always simple to sort out the differences between self-employment tax, business income tax, payroll taxes, sales tax, local or municipal taxes or how to file corporation tax. Each situation is unique. M& Ts Business Banking Specialists can guide you to the tax professionals that can answer your questions about filing business taxes.
We can connect you to the resources that will help you establish a successful system.
Get help with tax law changes
Tax laws, withholding rates, deductions and other regulations are subject to change. We can connect you to the resources that will help you to avoid fines and penalties that can result from failure to adjust to new rules.
Avoid mixing business and personal funds, such as using a business credit or debit card to pay personal expenses. Doing so could cause your records to be inaccurate and may disallow certain deductions. Keep separate personal and business accounts for checking, savings, lines of credit and credit cards.
Filing Taxes For Llcs
A limited liability company is a business structure that offers personal liability protection to its owners .
A single-member LLC is not treated as a corporation when it comes to filing taxes it is treated similarly to a sole proprietorship. The activities of the business are reported on the owners personal tax return. In addition to filing a Form 1040, the owner will also need to file:
- Schedule C: This reflects the profit or loss of the business and should be filed with the tax return due on April 15.
- Schedule SE: This calculates taxes due on income earned by self-employed individuals. This is filed with the tax return due on April 15.
Some LLCs are partnerships. In this case, partnership tax rules apply. Other LLCs are corporations and are treated as such in terms of filing and paying taxes.
Regardless of what business structure you have, you can obtain the necessary tax forms and instructions directly from the IRS.
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How Are Small Businesses Taxed
Before we jump into the details of how to file your small business taxes, its a good idea to understand just how small businesses are taxed. Well cover pass-through entities, which include sole proprietors, partnerships, limited liability companies , and S corporations. These types of businesses are called pass-through entities because the profits pass through to their business owners. The businesses themselves arent taxedthe owners are taxed on their profits.
For example, if your business makes $120,000 in revenue and has $20,000 in expenses, your profit will be $100,000. Youll pay state and federal income taxes on that profit.
But those arent the only taxes youll have to pay. Youll also be required to pay self-employment taxes.
So How Much Do You Owe
This is the first question most business owners ask. You may not always owe. In fact, many taxpayers who are filing small business taxes for the first time usually have more expenses than revenue.
This is because of startup costs and one-time costs like computers and equipment. There are many small business expenses that are deductible. Deductions lower your taxable income, and lower income means less income taxes to pay.
Itâs important that your accountant or tax professional knows about small business tax laws because overlooking these can cause you to miss out on savings and extra money to put back in your business.
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First Time Filing Taxes For Small Business
When you file taxes for the first time, carefully follow the instructions on the tax form. Make sure you fill out all the information correctly. Mistakes on tax forms could lead to an IRS penalty, fine, or audit.
Send the form to the appropriate government agency. Instructions on where and how to send the document will be located on the form. Send the form before its deadline.
Remember, this article focuses on federal business tax liabilities. You will also need to file taxes for your state, and possibly your locality. Check with your state and local business agencies to see which tax forms to file.
Tracking income and expenses is a critical part of filing business taxes. For a simple solution to your small business books, try Patriots online accounting software. Try it for free today!
This article has been updated from its original publication date of September 8, 2016.
This is not intended as legal advice for more information, please
How Do I Make My Quarterly Payments
Estimated tax is the method used to pay Social Security and Medicare taxes and income tax, because you do not have an employer withholding these taxes for you. Form 1040-ES, Estimated Tax for IndividualsPDF, is used to figure these taxes. Form 1040-ES contains a worksheet that is similar to Form 1040 or 1040-SR. You will need your prior years annual tax return in order to fill out Form 1040-ES.
Use the worksheet found in Form 1040-ES, Estimated Tax for Individuals to find out if you are required to file quarterly estimated tax.
Form 1040-ES also contains blank vouchers you can use when you mail your estimated tax payments or you may make your payments using the Electronic Federal Tax Payment System . If this is your first year being self-employed, you will need to estimate the amount of income you expect to earn for the year. If you estimated your earnings too high, simply complete another Form 1040-ES worksheet to refigure your estimated tax for the next quarter. If you estimated your earnings too low, again complete another Form 1040-ES worksheet to recalculate your estimated taxes for the next quarter.
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Determine Your Accounting Method
One of the first steps to consider when youre wondering how to file taxes for the first time is to decide whether youll be using the cash or accrual method of accounting.
With cash accounting, income and expenses are recorded only when money is exchanged. When a deposit comes into a business, its recorded as income. When a bill is paid, its recorded as an expense. For example, if only half of a bill has been paid, only half is recorded. With this method, you wont pay taxes on the revenue from the invoice that hasnt been collected yet.
In contrast, with the accrual method of accounting, income and expenses are recorded on the date a transaction occurs . In other words, lets say you have 2 invoices, but only 1 has been paid, youd still note both as income. Though more complex, this method is often seen as a more effective way to track cash flow and profitability since expenses and revenues are matched in the same reporting period.
Remember Your Home Office Deduction
Sole proprietors in home-based business locations should consider the ability to deduct a portion of their residence as a business deduction. To be successful in this widely contested area, the business area used in the home must be used exclusively for business.
The business owner would measure both the square footage of the home used for business and the total square footage of the home. The resulting percentage of business use would be applied to home office expenses to determine the amount to be deducted.
If the business has a loss, then a home-based business deduction is not allowed but can be carried forward.
In order to properly account for the business use of the home, the business owner would first deduct the percentage of the real estate taxes and mortgage interest that would otherwise be taken as an itemized deduction.
If there are still profits remaining, then other home expenses, such as landscaping, and general home repairs, would be allocated to the business and personal portion, and a deduction would be allowed for the business portion.
Finally, if there is still a profit, then depreciation on the home is allowed on the business portion.
To calculate depreciation, the cost of the home must be allocated between the cost of the land and the building. The building must then be allocated between the business and personal portions by the percentage calculated earlier.
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How Do I File My Business Taxes For The First Time
To file your business taxes for the first time, make sure you understand and fill out the required tax forms based on your businesss legal structure. Be aware of all due dates to avoid racking up penalties and interest. Use your financial records to record qualifying tax deductions that help lower your tax liability. Make sure you have all documentation and records on hand before filing. Finally, simplify the process by using tax software or hiring an accountant or tax professional.
Choose A Depreciation Method
The next decision to consider is the depreciation method to use.
The Internal Revenue Service permits a first-year deduction for most furniture and equipment, instead of writing off the cost over five or seven years. So, most business owners would generally elect to take the first-year write-off.
However, businesses without profits cant deduct the first-year depreciation deduction, although they can carry it forward to profitable years.
A business in its early stages might consider taking the slower depreciation route so that most of the deductions that will be available when the business has income and is in a higher tax bracket than when it was in the startup phase.
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Be Clear On Your Tax Obligations
When submitting atax return for your small business in its first year, knowing which IRS forms to file and what taxes youre liable for can be confusing.
It all depends on what sort of business entity you have. For example, some hold the owner personally responsible for company taxes, whereas others separate the businesss tax liabilities from the owners. Also, each business structure requires a different IRS form.
Weve broken down each entity below so you wont face any surprises, whether youre filing business taxes for an LLC for the first time, as a sole proprietorship or as another type of structure.
Which Tax Forms Do Small Businesses Need To File
Typically, the tax forms you will need to fill out will depend on your business type. For instance, if your small business is structured as a sole proprietorship or a limited liability company , you will need to complete IRS Form 1040 , while an S Corporation will need to complete IRS Form 1120 S . In addition, you may need to complete the following small business tax forms:
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Filing Your Small Business Taxes For The First Time Find Out What You Need To Know
If you are a small business owner and its time to file your tax return for the first time, you might be feeling a little overwhelmed. But dont panicweve got you covered. Fortunately, the process of filing taxes for the first time is not as scary as it seems. To help you get through filing your small business taxes, weve put together an overview of what you will need to know.
How To File Business Taxes For Your Small Business
Entrepreneurship comes with many responsibilitiesincluding filing business taxes. Here’s what you need to know about tax filing for your small business.
Around 400,000 small businesses start up each year, and along with selling their product or service, new business owners face new tax filing requirements. There are various ways to file business taxes, depending on whether the business is structured as a pass-through business or incorporated.
Each business structure has its own tax forms and filing deadlines, but you don’t have to become a tax law expert to file business taxes.
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