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How to file federal income taxes for small businesses

If you make $400 or more as a small business owner or in self-employment, you must pay Self Employment Tax and submit Schedule SE (Form 1040 or 1040-SR). You're probably wondering, "can I do my small business taxes myself?" Yes, you can! Nonetheless, it's crucial to understand how it works, so you don't make a massive mistake in the paperwork.

​​Depending on your business type, various ways to prepare and file your taxes exist. But where do you begin? What forms do you need to submit? How do you calculate how much you'll owe? Is it that bad if you don't file business taxes?

Don't worry just yet, because filing taxes doesn't have to be complicated. Consider this your comprehensive guide to small business tax filing.

How do small business owners file taxes for the first time?

Depending on whether you operate your small business as a sole proprietorship or employ a formal structure like an LLC or corporation, there are different methods you can submit a federal income tax return for your small business. Of course, you can always hire an accountant, but you must know what is going on, as with any other area within your business.

For reporting your business income and costs, different business entities may require separate tax forms. You typically compute your taxable business income in the same methods, regardless of the form you select.

Additionally, you have to consider independent contractors and give them 1099 forms. You'll need to determine whether employees are contractors, comprehend how to fill out a 1099-NEC form (a type of tax document used by the Internal Revenue Service), and properly submit the forms.

The three steps to follow when filing your taxes

Step 1: Get all your information ready

First things first, assemble all business documents. Before completing any tax forms, you should have all your records detailing your company's earnings and expenses.

Calculating your revenue and deductions might be a lot simpler if you use computer software or a spreadsheet to arrange and keep track of all transactions throughout the year rather than attempting to piece together the data for each sale and expense that took place. One of the most popular ones is QuickBooks or Quicken.

Step 2: Find the correct forms to use

Identify the appropriate IRS tax form for you. Choosing the proper method to report earnings depends on how you run your business, but you must always report your business earnings to the IRS and pay tax on them, as you know.

Many small business owners operate as sole proprietors, which enables them to include all of their business revenue and expenditures as an attachment to their income tax return on Schedule C (Form 1040). The IRS also considers you a sole proprietorship that utilizes the Schedule C attachment if you are the only owner of the LLC that you operate.

However, you must file a separate corporate tax return using Form 1120 for C-Corporations or Form the 1120S for S-Corporations if your company is set up as a corporation or you choose to treat your LLC as one. Multi-member LLCs often submit Form 1065 since they are regarded as partnerships.

Step 3: Fill in your forms within the deadlines

Once you have all your financial records, calculate your taxable income by subtracting your business expenses from your business income. This will give you your net income, the amount you will need to report on your tax return. In summary the general steps you can take to file your federal taxes with the Internal Revenue Service (IRS) are the following:

  • Based on your business structure, fill out the appropriate tax form. Sole proprietors will use Form 1040 and Schedule C, while LLCs and corporations will use Form 1120 or Form 1120-S. 

  • On your tax form, report your business income and deductions. This will include your net income and any other income you received from other sources, such as investments or rental properties.

  • Once you have completed your tax form, submit it to the IRS along with any required payments. You can file electronically using tax software or a tax professional or a paper return by mail.

  • Finally, keeping accurate records of all your financial transactions throughout the year is essential. This will make it easier to file your taxes next year and help you stay organized and in control of your business finances.

You must fill these in within the time frames provided by the IRS. The filing deadline for returns using a Schedule C with Form 1040 or filing Form 1120 for a corporation is April 15. You must submit Form 1120S by the 15th day of the third month after the end of the tax year, which is March 15, for most of S-Corps. At the end of the process, remember to keep a copy of everything for your records.

Is it bad if you don't file business taxes with the IRS? 

Yes, it is bad if you don't file business taxes with the IRS. Failing to file business taxes can result in penalties, interest, and other consequences that can impact your business and personal finances. Some of the potential consequences of not filing business taxes with the IRS are the following:

  • Penalties: The IRS can impose penalties for failure to file, pay, or both. The failure-to-file penalty is 5% of unpaid taxes for each month or part of a month that the tax return is late, up to a maximum of 25%. 

  • Interest: The IRS charges interest on unpaid taxes from the due date of the return until the taxes are paid in full. The interest rate is determined quarterly and is the federal short-term rate plus 3%.

  • Legal action: If you continue to ignore your tax obligations, the IRS can take legal action against you. This can include placing a lien on your property, seizing your assets, and even taking legal action to shut down your business.

  • Audit: Failing to file your taxes can also increase your chances of being audited by the IRS, which can be time-consuming and costly.

In summary, filing your business taxes with the IRS is essential to avoid potential penalties, interest, legal action, and audits. If you need help filing your taxes or have questions about your tax obligations, it is best to consult with a tax professional or the IRS.

Ensure your financial success with One Park Financial.

After reviewing the requirements for a successful income tax filing, you should ensure your company is financially secure and expands even further. With One Park Financials’ help, you can access a network of finance sources that provide small business owners with incredibly flexible approval terms.

Our team of experts will be more than pleased to assist you in finding the appropriate alternative funding as long as your company has been operating for at least three months and brings in $7,500 per month in income. Would you like to begin? Apply right away by completing our online form.

Disclaimer: The content of this post has been prepared for informational purposes only. It is not intended to provide and should not be relied on for tax, legal, or accounting advice. Consult with your tax, legal, and accounting advisor before engaging in any transaction.

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