Whether you are a solopreneur or managing a rapidly growing corporation, filing your small business taxes can be stressful. How do you know what you need and where to start?
When you’re organized and prepared come tax time, the entire process can feel significantly less stressful—and go much more smoothly. And we’re going to help you get there! Keep reading to learn five crucial steps to preparing your business taxes, including:
Understand the types of business taxes
Completing the necessary tax forms
Keeping a calendar of tax deadlines
Organizing your small business tax documentation (with a checklist!)
Maximizing your return with tax credits and deductions
Understand the types of business taxes
All businesses must pay certain federal and state taxes. This depends on your type of business entity (sole proprietorship, S corporation, or C corporation), whether you have employees, and if you sell specific products or services. Let’s take a brief look at the most common types of small business taxes:
Income tax: Taxes paid on the profits your company makes
Estimated taxes: Quarterly tax payments
Self-employment taxes: Social security and Medicare tax payments for self-employed individuals
Employment taxes: Social security, Medicare, and federal unemployment taxes for companies with employees
Excise tax: Additional taxes on specific goods and services
Complete the necessary tax forms
Your business structure determines which tax forms you need to submit. You’ll need to report profits, losses, deductions, and credits to the IRS. Some of the most common tax forms include:
Schedule C: Sole proprietors should use this form to report profit and loss and file it along with their Form 1040.
Schedule K-1: Owners of S corporations and partnerships and members of multi-owner LLCs (all pass-through entities) must file a Schedule K-1 to report income.
1099-NEC or 1099-MISC: Business owners and independent contractors use this form to report self-employment income.
Form 1120: C corporations must use this form to report income.
Form 1120-S: S corporations must file this form separately from their personal income tax return to report their income.
Form 1065: Partnerships file this information return to report their income, gains, losses, deductions, credits, etc.
Keep a calendar of tax deadlines
Business owners must stay on top of tax payment and filing due dates to avoid fines and penalties. Keep track easily by using a calendar with the following important dates:
January 31: Business owners must send W-2s to their employees and 1099s to their independent contractors. This is also the deadline for sending copies of these tax documents to the IRS.
February 28: Companies must file their information return using a 1099 or 1096 on paper. (If you file electronically, the deadline is April 1.)
March 15: Deadline for partnerships, S corporations, and multi-member LLCs to file their return.
April 15: Deadline for single-member LLCs, sole proprietors, and C corporations (that follow the standard calendar year for accounting) to file their return.
April 15: First estimated tax payment due
June 15: Second estimated tax payment due
September 15: Third estimated tax payment due
January 15: Final estimated tax payment due
When these dates fall on a weekend or holiday, returns and payments are due the following business day. You can use Form 7004 to file an automatic 6-month extension if you need one.
Organize your small business tax documentation
Below is a checklist you can use to ensure you have all the necessary information and documents as you prepare to file your business taxes.
General Information
Federal tax ID number
Social security number (SSN)
Previous three years’ tax returns (both state and federal)
Business Income Records
Accounting journals with a trial balance report showing the final amount in each account as of the last day of the year
Financial statements, primarily your balance sheet and income statement
Transaction documentation, including bank deposit slips, account statements, invoices received and paid, checkbook, credit card statements, and vehicle and mileage logs
Owner and partner distributions, including withdrawals, transfers, and payments made
Business Expense Records
Organize your receipts into the following categories:
Supplies: general office supplies
Recurring operational costs: Rent, utilities, and subscription-based services
Entertainment/travel: Any applicable business entertainment and travel expenses
Marketing/advertising costs: Expenses used to promote your business
Professional fees: Attorneys, consultants, accountants, bookkeepers, etc.
Sales tax returns: Include returns from all states in which you operate.
Insurance policy details: Individual and group plan documents, company vehicle policies, and any other insurance coverage documentation
Furniture, fixtures, and equipment: Include depreciation schedules for each fixed asset, as well as information on any disposed assets.
Employment Tax Documentation
Gather forms for all your employees, subcontractors, and other professional services, including:
W-9: Employee tax withholding certificate
I-9: Verification of employee legal work authorization
W-2: Wage and tax statements for each employee
1099-NEC and/or 1099-MISC
You’ll also need to gather payroll information:
Payroll reports
Gross monthly payroll
Employee payroll withholdings
Home Office Information
If you operate your business from a home office, you can deduct your office space and utilities. Gather information for any of the following that applies:
Square footage of office space: Include the size of your office and the total square footage of your home.
Mortgage interest or rent paid
Utilities
Insurance policy
Maximize your return with tax credits and deductions
Get the most from your tax return (or at least minimize your tax liability) by knowing which business expenses are deductible (e.g., business meals, home office equipment and supplies, business vehicle use, etc.). Check out our list of 15 common small business tax deductions.
Additionally, don’t forget to research business tax credits available to you. These include:
Small Business Health Care Tax Credit
To qualify for the Small Business Health Care Tax Credit, your business must:
Have fewer than 25 full-time equivalent (FTE) employees
Pay an average employee salary of $56,000 per year or less (adjusted yearly for inflation)
Contribute at least 50% to your full-time employees’ premium costs
Offer Small Business Health Options Program (SHOP) coverage to all of your full-time employees
Investment Credit
Investment tax credits benefit businesses with expenses related to pollution control, energy conservation, green technology, and other types of economic development. Some specific investment tax credits include the following:
Reforestation Credit
Rehabilitation Tax Credit
Solar Energy Investment Tax Credit
Federal Business Energy Investment Credit
For example, solar and wind energy investments could make your business eligible for one of these credits.
Disabled Access Credit
The Disabled Access Credit benefits small businesses that have incurred expenses necessary to improve accessibility for those with disabilities. Your company is eligible if it:
Earned $1 million or less, and
Had no more than 30 full-time employees in the previous year.
You can take the credit every year that you have accessibility-related costs.
Work Opportunity Tax Credit
The Work Opportunity Tax Credit is available to businesses that hire qualified individuals from targeted groups who have consistently faced significant employment obstacles. This includes veterans, ex-felons, and those with disabilities.
Alternative Motor Vehicle Credit
If you purchased electric or hybrid vehicles for business use during the tax year, you could use Form 8910 to determine your Alternative Motor Vehicle Credit.
Be Prepared for Your Small Business Taxes
When it comes to filing and paying your business taxes, there is no such thing as being too prepared! The more organized you are, the smoother things will be when those tax deadlines come around. Not to mention, thorough recordkeeping and organization will help reduce your tax liability and maximize your return.
Are you confused or stressed at the thought of gathering all your tax documentation? We understand how challenging it can be to juggle the many responsibilities of a small business owner. First, take a breath—then contact Check & Balance at 603-505-2368 or schedule a free consultation! We’ll be happy to help you ensure your accounting and financial records are in order for tax day.