Tax season tends to sneak up on all of us, and we may not see it coming when we own, run, and grow our businesses. However, to ensure we are prepared for April, it can be essential to look at what you need as a business owner come tax time. Depending on the type of business you are labeled under can change the preparation and execution process, leading you to need different paperwork, necessary procedures, and possible help from a tax expert to help get the return you deserve.
Some common business types are sole proprietorship, LLC, S-Corp, and C-Corp. At first glance, it might not seem like tax preparation will vary too much, but all of them come with their own needs and strategies for getting through tax season seamlessly.
Filing Sole Proprietorship Taxes
A sole proprietorship business is one of the most common small business types. This means that you are the sole owner, as in the name, and you are an unincorporated business. With that said, this also means that your business taxes are done with your personal taxes.
One of the first things to ensure you are prepared for come tax season is having all the necessary documents and receipts going into filing. This can help keep the process quick and easy on yourself and the business. Then, sole proprietorship businesses will have to file a Schedule C which is included on your Form 1040.
This form reports the profit, loss, and mileage of the business. For a tax form, it is relatively easy to manage. Schedule C is split into five parts: income, expenses, costs of goods sold, information on your vehicle, and other fees. To prepare, you will need documentation such as your SSN, EIN, previous tax returns, profit and loss statements, payroll, and general home expenses.
Filing LLC Taxes
Filing your taxes as an LLC can get a little tricky depending on some other factors that determine what type of LLC you are. There are different tax filing requirements for LLCs depending on the number of members and separate tax elections that can be made. Single-member LLCs are typically treated as disregarded entities and report business activity on Schedule C of the owner's personal tax return. Multi-member LLCs are generally treated as partnerships for tax purposes and file a partnership return (Form 1065) unless they elect to be treated as a corporation.
Once you are able to figure out what forms your business needs, it is time to prepare. Some helpful tasks to complete and documents to prepare for filing your LLC tax returns are the prior year tax return, records of your expenses and income, and ensuring updates have been made to each member’s capital account to reflect the amount of money, property, and services given to the business.
Filing S-Corp Taxes
If you are titled as an S-Corp business, you are able to enjoy pass-through taxation, where you pay taxes on the company’s earnings.
To start filing for an S-Corp, begin by preparing your financial statements. This means your profit and loss statements and your balance sheet. It can be easily found if you have used some form of bookkeeping throughout the year to track all of this data. You will also want to ensure that you have issued W-2 forms to all of your employees. Wages and taxes paid through payroll are a great business deduction and as an S-Corp, you're even allowed (and required) to pay your own self a reasonable salary and are able to deduct that as an expense as well. One your records have been updated and documents have been gathered, you will be ready to file your Form 1120-S which is the return associated with S-Corps.
The last two documents for you to handle as an S-Corp owner are Schedule K-1 and Form 1040. The schedule K-1 is produced from the completed 1120-S and given to each owner/member of the business to summarize their relevant part of the businesses' total earnings, shareholder earnings, salary, etc. The Schedule K-1 is what you will take from the business return to file with your personal return in order to be taxed on your corresponding share of the S-Corp activity.
Filing C-Corp Taxes
Documentation for corporations is more involved and requires a stricter deadline than other tax forms.
You will need to fill out Form 1120. You will need your business info including EIN, date of incorporation and shareholder information. You will also need details on gross receipts, total assets, dividends paid out, etc. Form 1120 also requires full reporting of the balance sheet, ownership of stock, and yearly figures.
Other Business Tax Filing Requirements
Although it may seem like the annual tax or information return is the only concern for business owners, there are other taxes and tax returns that may apply depending on your location and your business activity. Some examples include payroll tax returns (940/941), sales and use tax returns, and excise tax returns just to name a few. Just like with the other returns mentioned above, the requirements for these vary based upon your specific business needs. But it's always recommended to do your due diligence to understand what your tax filing requirements are on both a state and federal level.
With each business type requiring different forms and necessary steps, tax filing can become overwhelming. To help your tax preparation and strategy process become more efficient, reach out to Exclusive Tax and Financial Services today!