When it comes to finding out how to file your small company taxes, the IRS website may be overwhelming. But, because no one ever developed a business by drowning, we put up a straightforward, plain-language guide to filing your small business taxes, regardless of the type of business organization you have.
Here’s everything you need to submit your federal income taxes in 2020, from beginning to end.
Make Sure Your Records Are in Order.
Gather all of your pertinent company records before you begin. What does this have to do with anything, you might wonder?
You’ll need different items depending on your sort of business, but start here:
- Information about the individual (SSN, address, DOB, etc.)
- Returns from the previous year
- The number assigned to the employer (find yours on the IRS website)
You’ll also need to gather information about your profits and spending. In terms of profits, this may be:
- Client invoices that you sent
- should document any items sold to clients.
- Sales records are a way to keep track of how much money is flowing into your company.
Gather receipts for any charges you incurred during the procedure on the expenses side. Consider the following ideas:
- Tickets for your small business’s rent
- Supplies for the office
- Salaries for employees
- Lunches with clients
- Records of mileage
We designed a small company tax checklist for each small business entity because they would need to provide various information for their returns.
Bookkeeping pro can also assist you in avoiding the terrible job of sorting through crumpled business-related paperwork in shoe boxes. Our small company bookkeeping pro maintains track of your profits and spending throughout the year and saves them in cloud based accounting applications so you can access them at any time like QuickBooks.
Select The Appropriate Form for Your Company’s Structure.
Now that you’ve organized your documents, it’s time to get the appropriate tax form—which may vary depending on the type of small company organization you run.
Single-Member LLCs or Sole Proprietorships
File as a sole proprietor if you run an unincorporated business, are an independent contractor, or have a Limited Liability Company with only one member. There’s no need to file a separate return because you’ll record your company profits and costs on a Schedule C that’s linked to your income tax return.
The IRS offers very comprehensive line-by-line instructions to help you get it correctly. Schedule C is only two pages long. Deduct your entire costs from your profits to arrive at your net profit or loss.
You’ll need to add up your itemized tax deductions on Schedule A if you want to claim them. If your total income is less than $72,000, you can submit your taxes using the IRS Free File program. Even if your income exceeds $72,000, you can still use the IRS’s free fillable forms.
Find the address for your state here if you’re going old school and filing a paper tax return with the IRS. Make sure it’s postmarked by the deadline or earlier. Note that sole proprietors and LLC members are self-employed, which means they must pay self-employment tax (made up of social security and Medicare).
Multiple-Member LLCs or Partnerships
Partnerships come in various shapes and sizes, but they all file small company taxes in the same way. The same is true for Limited Liability Companies (LLCs) with numerous members who want to file their taxes as a partnership.
If your small business falls into this category, you must submit Form 1065, after which each member will get a Schedule K-1 detailing their portion of the profit or loss for the year. This information includes each partner’s tax return. There’s no need to submit a separate return this time.
The IRS provides guidelines to assist you in completing Form 1065. However, this form is complicated and typically requires the assistance of a professional.
C Corporations or Limited Liability Companies (LLCs)
You’ll need to file a separate business income tax return with Form 1120 in addition to your taxes if your small business is a C corporation or if you treat your LLC as one. The corporate income tax rate is now a flat 21%, thanks to the Tax Cuts and Jobs Act.
However, you’ll still have to pay taxes twice: once on your company tax return and again on your tax return. C corporations can also seek appropriate tax deductions on Form 1120.
Form 1120 is comparable to Schedule C, but it is more complicated, necessitates more information, and is separate from your tax return. Although the IRS provides instructions for Form 1120, and it’s helpful to glance to get a sense of the details, smallest company owners choose to engage a professional to complete these forms.
S Corporations
If your company is a C corporation or a limited liability company with elected S corporation status, you must submit a separate corporate tax return using Form 1120S. On their taxes, S corps stockholders must declare their portion of profit or loss on a Schedule K-1.
However, the corporation must still submit its tax return. S corporations can also claim any appropriate deductions on Form 1120S. The IRS provides Form 1120S guidelines to assist you, but smallest company owners choose to hire a professional.
Any Small Business That Pays Contractors Is Considered a Small Business.
You must also submit Form 1099-NEC with your taxes if your small business paid $600 or more to a contractor or professional (i.e., someone who worked for you or supplied you with a service but is not an employee). For additional information, see our 1099 filing guide.
Because you must request this paperwork from the IRS, you must make your request far ahead of the February 1 deadline.
Submit Your Tax Return Online.
In 2018, 92% of taxpayers in the United States submitted their taxes online. It is because filing online:
- You don’t have to fill out any paper forms.
- It expedites the submission of your tax return to the IRS.
- Allows you to get your refund by direct deposit.
- Is it as safe as submitting your paperwork through the mail?
You have two alternatives when filing your taxes online with the IRS (also known as e-file): Free File and Free File Fillable Forms. You can utilize Free File if your adjusted gross income (AGI) for the year is less than $72,000. You’ll use Free File Fillable Forms if it’s more than that.
Here’s How They All Operate.
When you utilize Free File, you do your taxes using online software that automatically sends a copy to the IRS. You don’t have to get your hands filthy when filling out documents or doing math. It’s a popular option; roughly one-third of all Americans utilize it.
The IRS has teamed up with 13 companies to enable free online tax filing. So you don’t have to sign up for Free File through the IRS website; if you join up with one of the 13 approved providers, you’ll be able to use it right away.
Choosing A Provider of Free Files
You can utilize a free tax filing package from each supplier. Aside from that, there are premium levels with more functionality. The more complicated your tax file, the more features you’ll require.
Unfortunately, if you own a company, a free pricing bundle will most likely not be enough. They won’t have the sophisticated features you’ll need, nor will they have the paperwork you’ll need to submit for your firm.
Packages for small company owners and contractors range from $54.95 to $94.99. The bundle you select will be determined by which features you require and which you do not.
Keep in mind that this only applies to federal taxes. Most online providers charge an extra fee for state tax filing and sales tax.
Fit Small Business offers an overview of the benefits and drawbacks of each software supplier if you’re undecided.
Fillable Forms in A File for Free
You’re simply filling out electronic copies of paper tax forms using Free File Fillable Forms. It’s on the IRS website. They do simple computations but do not check for errors. It’s up to you to double-check that everything is accurate.
How Does It Work?
Once you’ve registered for a Free File Fillable Forms account with the IRS, you’ll be able to log in and choose and fill out the forms you need for your business. After you’ve completed the central portion of your return, you’ll need to decide which income papers you want to include W2s or Form 1099s, and then input data from them.
Free Fillable Forms calculates how much of a tax return you’ll get or how much you’ll have to pay. By inputting your bank information and getting a direct electronic funds transfer (EFT) from the IRS, you may pay your taxes or collect your refund.
Finally, you sign your return digitally and send it to the IRS. You can choose to print a copy of the document.
Is It Really Worth It?
You can’t utilize Free Submit Fillable Forms to file back taxes since they only function for the current tax year. It’s also only for federal taxes, not state ones.
Using Free File Fillable Forms only makes sense if you’re already familiar and comfortable with manually completing your company taxes and those taxes aren’t too complicated. If any of the above is applicable and you don’t want to prepare your taxes by hand, the Free File Fillable Forms are a fantastic option.
If your firm is more complicated than a single proprietorship or an LLC, finding and hiring an accountant to file your taxes for you is a far better alternative.
If You’re Running Late, Ask for an Extension.
The date for submitting your small company tax return will vary depending on your business entity, but if you’re running late, don’t worry: you can always request an extension. While this provides you some more time to complete your papers, it’s crucial to remember that you must still pay your estimated taxes by the original date.
Having to Pay Taxes
The majority of firms are obliged to pay anticipated tax installments four times a year. Do you want to figure out how much tax you’ll have to pay? Use our easy-to-use tax estimator.
The IRS Payments Gateway allows you to pay estimated or over the phone. Payments must be through the Electronic Federal Tax Payment taxes online System for companies.
