Small business taxes & returns can seem daunting to the untrained eye. However, taxes are a necessary part of running a small business. Luckily, small business tax returns are not as complex as tax returns for corporations.
Many small business owners will file their taxes through a tax consultant, but it is possible to prepare and file your taxes yourself following these steps.
Preparing Small Business Taxes & Returns
The first thing you will need to do prior to filing your tax return is to obtain an Employer Identification Number from the IRS. You can do this online at the IRS.gov website. This number is not required for all small business tax returns but banks and other companies may need this number from you.
Throughout the year you will want to keep accurate records of sales and expenses. Keep receipts, invoices, cancelled checks, deposit slips, and anything else that might show any income or expense. You will want to store all this information in a safe place for at least five years should any of your business tax returns get audited or if the IRS has any questions.
It is a good idea to use bookkeeping and accounting systems to help you track income and expenses. This does not have to be complex; a simple system will suffice as long as it is able to track the necessary information. Being able to save this information not only makes it easier to file your business tax returns but it is also very handy to have should the IRS have any questions.
If you have employees and payroll, you will want to have each employee fill out and sign a W-4 before they begin working for you. This way you will know how much income tax to withhold from their paychecks. You will want to track all withholdings so you have the amounts when you file your business tax returns. You may want to place the withholdings into a separate account so that you have the money when the taxes are due.
Filing Small Business Taxes & Returns
When you are ready to file your small business tax returns you will want to gather all the needed forms and fill them out. You will need a Schedule C or C-EZ of form 1040 to file sole proprietor income taxes and Schedule SE of form 1040 for self-employment income. Form 1065 will be needed if you are filing partnership income taxes. All of these forms are available online at IRS.gov.
A large number of small businesses are eligible to file their business tax returns online using the E-file system. This option can be accessed at IRS.gov/efile and can speed up the process of submitting your taxes.
As a small business owner with employees, you will need to complete and mail a W-2 form to each employee and the Social Security Administration every year when you file your business tax returns. You will also want to fill out and send a 1099 form to each independent contractor and the SSA. The information from the W-4s filled out by your employees will help you process the W-2 forms.
The most important thing about filing small business tax returns is to keep accurate and up to date records of every transaction, financial or otherwise.