Business tax filing can vary depending on the type of business structure in place. To ensure that your business taxes are done correctly, there are some key steps that should be taken first to establish what type of business setup has been used:
What timeline should you be following to do your business taxes?
Need a hand in filing your business tax online? First, let’s see when you need to file your taxes.
Sole proprietor or Single Member LLC:
For many gig and freelancers, operating as a single-member Limited Liability Company (LLC) or as a Solo Proprietor is preferred.
Partnership or Multi-Member LLC:
An LLC or a business formed as a “partnership-multi member” is not taxed as a corporation but instead has multiple owners.
An entity with the legal status of a corporation may selected to be taxed as an ‘”pass-through entity,”‘ such as a partnership or LLC.
When a large business requires its own separate legal identity, they often form a type of company known as a ‘Corporation.’ This entity exists independently of any owners and carries its rights and responsibilities.
Trying to figure out which form to file and when can be a complicated task, especially depending on the entity’s structure. Business taxes may either be paid by the owner or the business itself – this all depends on what legal setup has been established. Furthermore, every type of entity has its own IRS form and filing deadline that must be adhered to.
Business Tax Filing for Sole Proprietorships
Sole proprietorships are the most simple and straightforward type of business tax filing. You can confidently fill out Schedule C, which is only two pages long. This form is attached to the 1040 individual return, which is then filed with tax authorities. Being this simple, tackling this task via tax software or by hand is a safe bet.
To complete your taxes, the following documents are essential:
- Schedule C: Profit or Loss From Business
- Schedule SE: Self-Employment Tax
Additional paperwork will be needed should you specify a home office deduction or account for depreciation, such as:
- Tax Form 8829: Expenses for Business Use of Home
- Tax Form 4562: Depreciation and Amortization
Filing a business tax return on Form C is usually quite uncomplicated, but certain elements can be confusing. For example, you may need to grapple with the Qualified Business Income Deduction. Again, business tax is an area where it can be useful to have the professional help of an experienced service for filing taxes.
Business Tax Filing for Simple Partnership
It’s advised to avoid taking the DIY route when it comes to business partnerships. Those kinds of entity structures tend to be complicated, which is why you should use software or consult a professional instead. In addition, when filing individual income taxes, you’ll need to fill out a K-1 form to let the IRS know what part in the partnership you have and how much money was earned through it.
To comply with the K-1 filing requirement, it’s important to maintain a record of how much of the company each partner possesses according to their individual contributions. This is known as the basis of the partnership. Losses or profits for tax purposes must be allocated accordingly among partners based on their basis in the business.
Do you know when a tax return is considered simple? To understand this, it’s important to define a simple partnership.
So, how does one identify whether or not they have one?
Are you worried about having to report a Balance Sheet on your tax return? To be in the safe zone, confirm that these two statements are true: Your gross income is less than $250,000, and business assets are under $1 million. When both of these business conditions have been met, there will be no need to submit a balance sheet detailing all assets and liabilities as part of taxation. Doing so requires good bookkeeping skills for accurate documentation annually.
When running your own small business, nailing down the financial details is not easy. While keeping accurate books is essential, getting the bottom line accurately can be difficult. Attempting this manually isn’t recommended.
When should you seek help from a Dedicated Tax Professional?
Hiring an accountant in the business world shouldn’t be taken lightly. Doing so should be something other than a trial and error process, as even the slightest error can lead to serious repercussions further down the line. Avoiding such a “fake till you make it” approach is essential for successful financial management.
Prior Tax has free dedicated Tax Professional support to walk you through your business tax filing step by step from start to finish. Don’t hesitate to reach out and find your dedicated tax professional.
When it comes to tracking the financial side of your business, finding the right professional help can save you from costly mistakes. This is especially true when your company runs on an accounting method other than “cash”. Whether it’s accrual or hybrid accounting, hiring an accountant is wise. The complexities of these models can often be difficult to manage; even experts may make errors that could end up costing you problems in the long run.