Opening and running a small business comes with a host of financial obligations large and small. One of the most important things you’ll do as a small business owner is meeting your tax obligations, including withholding taxes from employees’ paychecks, paying estimated taxes, and filing your taxes on time.
At Select Funding, we assist small business owners with the financial aspects of their businesses and that includes helping them secure funding to ensure they can meet their tax obligations. Since business taxes are different and more complex than individual taxes, we’ve created this tax guide on how to file taxes for a small business. Here’s what you need to know.
If your business is just getting started, you’re self-employed, or your business hasn’t earned much income, do you still need to file and pay taxes?
The short answer is yes. According to the IRS, self-employed individuals whose net earnings from self-employment total $400 or more must file a tax return.
As of 2021, there are limits for individual income taxes, something that may be important if your business is a sole proprietorship, partnership, or a single-member Limited Liability Company (LLC). If you are single and earned less than $12,550, you are not required to file an individual income tax return. ($12,550 is the standard tax deduction for 2021.)
If you own an LLC or partnership that’s taxed as a corporation, or you own a corporation, then you must file and pay taxes.
The structure of your business is the determining factor of whether you are required to file a business tax return separate from your personal tax return.
Businesses that are organized as sole proprietorships, partnerships, some LLCs, and some S corporations, may be classified as pass-through organizations. What that means is that any income from the organization is passed through to its owners as personal income and taxed accordingly. However, that doesn’t mean you won’t need to file a tax return.
According to the IRS, any company must file a separate tax return unless it is a partnership. For the purposes of taxation, any LLC with two or more members is considered a partnership unless its owners opt to be taxed as a corporation.
There are additional tax filing requirements for corporations. We’ll explain those in the next section.
The types of tax you are required to pay as a business owner are dependent upon your business structure as well as a variety of other factors. Here are some taxes you may need to pay if you own a small business. Let’s start with federal taxes:
It’s your responsibility as a business owner to ensure that you pay all applicable taxes in a timely manner.
On the state level, tax law varies depending on where you live and do business. Here are some of the taxes you may need to pay in the state where your operations are based:
Sales tax percentages vary by state and if you sell products in more than one state, you may need to file and pay sales taxes in multiple states.
The steps to prepare and file taxes for your small business are straightforward but can seem complicated if you wait until the last minute to do what you need to do. It’s for that reason that many small business owners choose to hire a tax professional to work with them all year long to ensure that they maintain appropriate records, pay all estimated taxes on time, and properly file all state and federal taxes.
Here are five broad steps to help you prepare your taxes.
The first step is to gather any and all documents related to your taxes. These include the following:
The specific documents required may vary depending upon where your business is located and your business structure, which is why we suggest working with a tax professional instead of trying to file your taxes without assistance.
The next step is to collect the tax forms you need to complete your tax filings. Here again, there are many forms and not all will apply to your business. Here are some of the most common forms that you are likely to need:
You may require additional forms, including state income tax and state tax forms. You should check with your state taxing authority to ensure you have all the necessary forms.
Throughout the year, it’s essential for every small business to know which filing deadlines apply to which forms and to file and pay their taxes accordingly. Some tax forms are required to be filed monthly or quarterly while others require only an annual filing.
For example, Form 1120-F is used to estimate business taxes and must be filed once each quarter. According to the IRS, this form and any taxes associated with it are due by the “15th day of the 4th, 6th, 9th, and 12th months of the tax year. If any due date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next regular business day.”
Employee payroll taxes must be paid and filed by the 15th day of the month following the payment. In other words, payroll taxes for August must be paid by September 15th, payroll taxes for September must be paid by October 15th, and so on.
The fourth step is to complete all forms, attach any necessary documents, and file them with either the Internal Revenue Service or your state taxing agency.
Your accountant or tax professional will help you complete IRS forms, some of which may be complex or confusing. Remember that every tax form comes with published instructions, all of which are available from the IRS or your state taxing authority.
The final step is to maintain thorough tax records. While it’s unlikely that you will be the subject of an audit, keeping complete records is the best way to ensure a smooth audit process.
Any documents related to your taxes, including documents that you used to calculate tax deductions and credits, should be stored with your tax documents. At a minimum, you should maintain these records for seven years from the tax year of your return. The IRS has the right to audit within that period.
We’ll close with a few tips to help you minimize the amount of tax you owe while still meeting your obligations:
These are just some of the ways you can reduce your business tax. Your accountant can help you identify other areas where you can save.
As a small business owner, it’s your responsibility to make sure that you file all necessary tax forms and make on-time payments to both the IRS and your state taxing agency. To do so, you’ll need money on hand to make estimated tax payments.
Are you in need of small business financing to help you meet your tax obligations? Select Funding is here to help you! Click here to learn about our small business financing options and apply today.