Every business, regardless of size or industry, must file federal, state, and local taxes every year. Tax season is often dreaded by business owners because of the details and complexity associated with business tax returns.
This is especially true for business owners who must still juggle other important tasks. To simplify the process and reduce stress, being proactive about taxes will help ease these burdens. Starting early and actively planning for annual taxes also ensures compliance with tax laws since non-compliance results in expensive penalties and fees.
The following are important steps you’ll need to follow to correctly file your taxes on time.
Gather information like your tax ID before filing
To file taxes, anyone who owns a business will need a tax ID. This ID is also known as an employer identification number (EIN). If you have your EIN already, great! You can move on to the next step. However, if you don’t, you can apply for your EIN.
● Gather details about your company, including legal name, DBA (“doing business as”), and business address.
● List the individual responsible for the company
● Obtain the taxpayer ID of the responsible person – this could be either a Social Security Number or an Individual Tax Identification Number.
● Note the company’s business structure, e.g., LLC, partnership, or corporation
● Select the reason why you need an EIN
● Provide an estimation of the number of employees you have or plan to hire
You’ll need an EIN not just to file taxes but also to enable you to hire employees, open business bank accounts, and apply for certain licenses and permits.
Choose the best method to file your taxes
Fortunately, modern businesses have many options for filing their taxes. You will most likely want to select an automated method of filing your company’s taxes. A majority of people often turn to tax software to e-file their taxes. You’ll find there are many free and paid tax software options. Another option would be to work with an experienced tax accountant or attorney.
While you can certainly still file paper forms and schedules, this is an arduous process and very time-consuming. If you do choose this route, you’ll want to make sure to mail your taxes to the correct IRS and state locations, on time, and be sure to have enough postage to cover the costs of mailing your tax documents.
Find and fill out the tax return forms required to file
To ensure a correct and timely tax return, businesses will want to keep careful records throughout the year so that they can transfer these details to their tax forms. To prepare for filing taxes, prepare to have your ledgers, journals, spreadsheets, or cloud-based software handy, so you can extract pertinent tax information and transfer it to your forms. The following are common forms businesses use.
● Form 1040: Due on April 15, this is the standard form for individuals and businesses to use when filing their income tax returns. Businesses can list tax deductions, claim credits, report profits and losses, and calculate how much they owe through this form. Some schedules may be required, depending on the business.
○ Schedule C: Outlines incomes and losses for sole proprietors
○ Schedule ES: Utilized to calculate and pay estimated quarterly taxes
○ Schedule SE: Used to calculate Medicare and Social Security taxes from self-employment
● Form 720: For businesses required to pay excise taxes, this is due each quarter (April 30, July 31, Oct. 31, and Jan. 31).
● Form 940: Determines the amount a business contributes to unemployment insurance. Most businesses that have employees will need to file this form. Check deadlines.
● Form 941: Form businesses use to report payroll information, including salaries, wages, tips, and tax withholding details. Filed quarterly, although some large businesses must file semi-weekly and will need to include Schedule B.
● Form 944: Used mainly by small businesses, this form simplifies the tax process and can be filed once a year.
● Form 1120: Used by C corporations when filing taxes.
● Form 1120-S: Form utilized by S corporations to file (may need Schedule K).
● Form 1065: Used by partnerships and LLCs taxed as partnerships.
Be aware that a number of these forms may be due on dates other than April 15. Know your company’s specific situation and file the correct forms on time.
Pro tip: Make sure you proactively prepare for potential write-offs, such as startup expenses, employee salaries, employee health insurance, business insurance, charitable contributions, and any repairs/maintenance qualified to be written off as a deduction, to name a few potential ways to decrease tax liability.
Choose the best payment method
As you work through your tax forms, you’ll have a better idea of how much, if any, taxes you will owe the federal, state, or local governments. If you find you will owe money after filing taxes, make sure to pay your tax bill on time, or else face severe penalties and fines.
Today, like filing taxes, paying taxes can also be completed in several ways, including making an online payment through tax software or directly to the IRS, sending in a check or money order via the U.S. Post Office, or setting up a payment plan agreement with the tax agency. Choose the method that makes the most sense for your company.
Make sure to file your taxes before the deadline!
Once you have completed your tax forms and assembled your tax return, it’s time to file. Be sure that whoever has prepared your tax packet has double-checked it to make sure it’s factual, free of mistakes, and is not missing any forms the government requires.
After this last step is complete, you can send your tax return in. Generally speaking, the U.S. tax deadline is April 15, but if it falls on a Sunday or federal holiday, your return must typically be postmarked by the next business day. Businesses, under some circumstances, may be permitted to file for an extension. If you want to pursue this, learn the deadlines and be sure to understand any extra fees that may be involved.
Either way, be sure to file your completed tax return on time! If you miss the deadline, it will involve extra costs.