The legal structure of the small business essentially determines when and how the business taxes have to be filed. The process is pretty much the same for different businesses, but the forms used, and deadlines vary based on whether it is a sole proprietorship or any other legal structure. In this section, let us look at the three simple steps you need to follow whenever you file the taxes for your business.
Step #1: Gather All Records
Perhaps the simplest process of filing for taxes is the first step. All you need to do is merely gather your business records and get started. Also, these days, this process isn’t as cumbersome as it used to be. There are several computer programs that can be used to organize transactions and track them conducted by the business across the year. Therefore, you can easily rely on the information presented by the software you use for tax preparation. If you don’t use accounting software, then you need to manually gather the bank records, paid bills, sales slips, receipts, invoices, deposit slips, credit, and debit card statements, canceled checks, and everything else that helps track the income and expenditure of your business.
Step #2: Select the Forms
If the business is a sole proprietorship, then to report the income and expenditure of the business, you will need to attach Schedule C to the personal tax return file. If it is a limited liability corporation, and if you’re the only member of the LLC, then the profits and losses on the personal income tax return will pass through to schedule C that will be filed with the 1040 tax return; you can use as an individual file. If the LLC has at two members or more, it is classed as a partnership, and for the sake of Federal Income Tax, form 8832 needs to be filed with it. Also, the members of the LLC need to elect this option to treat the LLC as a corporation.
If the business is a corporation, then a separate corporate tax return has to be filed with the Form 1120. If you use any tax preparation software, then the program automatically generates the appropriate form that needs to be filed by the business. S corporations are usually treated as a mere extension of the shareholders. For the sake of Federal Tax purposes, passing along of income deductions, losses, and credits, the S corporation is treated as an extension of its shareholder. Schedule K-1 is provided to the shareholders of an S Corporation to fill out their yearly income deductions. The tax return for S corporation has to be filed with Form 1120.
The tax treatment of a partnership is quite similar to those of S corporations. Partnerships are also required to provide schedule K-1 form to all their partners. The partners then need to detail their share of income deductions for a concerned tax year. The partnership on itself is required to file an informational return via Form 1065 that’s submitted to the IRS.
Step #3: File on Time
If your business doesn’t use tax software, then you need to fill out the forms manually. To do this, download the required forms from the information mentioned above from the official website of the IRS. Once you download the forms, print them out and fill them in according to the instructions given. First, sole proprietorship and LLCs, schedule C is filed along with the personal income tax return, which is due before April 15 of any concerned year. Schedule C is a simple form that needs to be filled in. It usually contains two pages and has various lists of expenses that can be claimed. Whenever you finish the form, subtract the business expenses from the earnings, and it will help you calculate the net loss of profit of the business. Then this figure must be transferred to your personal income tax forms. In the income tax form, including all other personal sources of income. Once the forms are filled in, you need to mail them or submit them electronically to the IRS.
If the business is a corporation or a partnership, then the taxable business income is calculated in the same way as mentioned above, but the forms to be filled are more detailed. Also, the business tax forms for partnerships and corporations need to be filed separately from the personal income tax returns. For a partnership, form 1065 schedule K- 1s needed to be filled in by every partner and then filed before the due date of 15th March. For S corporations, Form 1120S needs to be filed before 15th March. Form 1120 has to be filed by a C corporation. The end of the business’s tax year affects the due date of the tax return policy of a corporation.
After the companies or businesses tax year comes to an end, tax returns need to be filed on or before the 15th of April. For instance, if the business’s fiscal year came to an end on December 31st, 2019, then the corporate tax for the C Corporation needs to be filed on or before the 15th of April 2020.
File for Extension
When it comes to taxes, the IRS is incredibly particular about its deadlines. Also, if a business fails to meet any tax deadlines, strict penalties will be doled out. A business can get an extension provided it has a valid reason to ask for an extension. Getting an extension doesn’t mean the business doesn’t have to pay its taxes on time. It essentially means the business gets additional time to get all its documentation and paperwork in order. However, even if you get an extension, you still need to estimate the tax owed and then submit that amount whenever you file for the request for an extension. If you don’t submit such an estimate or underestimate the tax that’s due, then the IRS can invalidate the extension. If this happens, your business will be directly held liable for all the penalties and interest accrued due to the failure of timely payment of taxes.
The deadline to file for an extension is the same as the deadline to file for a tax return. Therefore, ensure that the business requests the extension and pays the estimated taxes whenever it files for an extension. In this section, let us look at the simple steps you need to follow if you want to file for an extension.
Single-member limited liability companies and sole proprietorships need to use Form 4868 issued by the IRS, along with a schedule C attached with a personal return to file for an extension. Corporations, LLCs, and any other big businesses need to use the IRS form 7004 to file for an extension.
As with the submission of an individual return, whenever a business submits such a form it is treated as an automatic request for a six-month extension to file the income tax for the concerned business.
Any Federal tax extension forms can be submitted electronically, and you no longer need to submit them manually. All the details required to download the online fillable forms can be obtained from the IRS’s official website.
You can also download the e-file form for the same from the IRS official website. Whenever you submit this form, ensure that your business pays the estimated income tax due. You can do this electronically or pay for it using a credit card. If you submit the form through regular mail, ensure that you submit the check with it.
If the business is located in a state that charges an income tax, and if you need an extension, you need to file for an extension with the concerned state. Every state has its own procedure, so find the necessary information on the official website of your state’s revenue service. Usually, the automatic extension program is the same for federal and state governments. The best way to ensure that all the forms are submitted on time, and the right form is submitted to start using electronic software. It not only saves time and effort but also ensures that your business doesn’t run into any legal troubles with taxes.