Navigating the Tax Maze: A Business Owner's Guide to Filing Taxes

Navigating the tax season can be challenging for businesses. The tax system's complexity coupled with tax preparation and filing deadline pressures can take a toll on many business owners. Knowing how to handle federal, state, and local taxes is always a good starting point but with the ever-changing tax laws, working with a tax professional is always an excellent strategy to ensure your business remains compliant. 

In this post, we break down the basics of business tax filing to equip you with the knowledge you need to prepare for the tax season. 

Types of Business Taxes

There are different types of business taxes depending on the form of business. These are classified into the following five categories:  

  1. Income taxes: All business types except partnerships are expected to file annual income tax returns. 

  2. Estimated taxes: Taxes are expected to be paid on a pay-as-you-earn basis throughout the year of income. This is either remitted through withholding or estimated tax payments. You're liable to pay estimated taxes if you're a sole proprietor, S corporation shareholder, or partner and expect to owe $1,000 or more when filing your return. The only exemption to estimated taxes is if you meet all the following three conditions:

    1. Had no tax liability in the previous year

    2. Were a U.S. resident alien or citizen the whole year

    3. Previous tax year covered 12 months 

  3. Self-employment taxes: If you work for yourself, you're expected to pay self-employment taxes, a social security and Medicare tax. Social security coverage provides benefits such as retirement, survivor, disability, and hospital insurance (Medicare). You're liable for SE tax if your earnings are $400 or more. 

  4. Employment taxes: If you have employees in your business, you're liable to pay the following employment taxes:

    1. Social security and Medicare taxes

    2. Federal unemployment (FUTA) tax

    3. Federal income tax withholding

  5. Excise taxes: You may need to pay excise taxes if you engage in certain businesses, manufacture/sell particular products, use various types of equipment or products, or receive payment for specific services. 

Tax Implication on Various Business Types 

The taxes applicable to any business depends on its structure. For tax purposes, the IRS classifies businesses into sole proprietorship, partnership, international business, corporation, S corporation, and Limited Liability Company (LLC). 

  • Sole proprietorship: An unincorporated business owned by an individual. A sole proprietor may be liable for income tax, self-employment tax, estimated tax, employment taxes, and excise taxes. 

  • Partnership: This is a business jointly owned by two or more people. A partnership doesn't pay income taxes. Instead, it files an annual return of income to report its finances and then passes the profits or losses to partners who report their share of income on their personal tax returns. However, the partnership may be liable for employment and excise taxes.

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  • ternational business: This refers to either a foreign company operating in the U.S. or domestic businesses with operations outside the U.S. There are various regulations and guidelines on reporting international business operations, such as the Foreign Account Tax Compliance Act (FATCA) and foreign bank and financial accounts (FBAR).

  • Corporation: A corporation is a taxpaying entity liable for income taxes, employment taxes, and excise taxes. If you're a shareholder and receive dividends, you're also expected to report the income received in your personal tax return. 

  • S corporations: These corporations pass their income and losses to shareholders, which is assessed at the individual income tax rates. The strategy enables the S corporation to avoid double taxation, like in the case of corporations. However, S corporations may still be liable for certain types of income, which might require filing income tax, employment taxes, and excise taxes. For S corporation shareholders, they may need to file income tax and estimated tax based on the income received.

  • Limited Liability Company (LLC): The taxes applicable for an LLC may vary depending on its classification (corporation, partnership, or single-member LLC).

How to File Taxes

If you're unsure how to go about filing your taxes, here is a step-by-step guide. 

  1. Gather your records: The first step when filing taxes is preparing your financial information (analyzing incomes and expenses) to compute your tax liability.  

  2. Know the IRS forms to file: There are different types of forms that need to be filed based on the business structure and the type of tax. Here are examples of forms you may need to fill out depending on your business type.

    1. Annual return of income: Form 1065

    2. Income tax: Form 1040, Schedule C (Form 1040), Schedule E (Form 1040), Form 1120, Form 1120-S, Schedule K-1 (Form 1120-S)

    3. Self-employment tax: Schedule SE (Form 1040)

    4. Estimated tax: Form 1040-ES

    5. Employment tax: Form 941, Form 943, Form 944

    6. Income tax withholding, social security and Medicare taxes: Form W-2, Form W-3

    7. Federal unemployment (FUTA) tax: Form 940

  3. Complete the forms: Fill out the forms with accurate information. A tax professional can offer guidance as needed.

  4. Observe deadlines: Deadlines for tax filing vary depending on the type of tax. Taking note of the applicable deadlines ensures you prepare your tax information on time to avoid late payment and the resulting penalties. Here are key tax payment and filing deadlines to keep in mind:

    1. January 16, 2024: Sole proprietorships

    2. January 31, 2024: All businesses

    3. February 15, 2024: All businesses

    4. February 28, 2024: All businesses

    5. March 15, 2024: Partnerships and S corporations

    6. March 31, 2024: All businesses

    7. April 15, 2024: Sole proprietorships, corporations

    8. April 30, 2024: All businesses

    9. June 17, 2024: Sole proprietors and corporations

    10. July 31, 2024: All businesses

    11. September 16, 2024: Sole proprietors, partnerships, S corporations, corporations 

    12. October 16, 2024: Sole proprietors and corporations 

    13. October 31, 2024: All businesses

    14. December 15, 2024: Corporations

Note that if need be, you can request a business tax extension by filling out Form 7004.

Ready to Start Filing Your Taxes?

Filing taxes accurately and on time is an important obligation for every business owner. Failing to comply not only risks attracting penalties but could trigger an IRS audit a couple of years back, which can be time-consuming and costly. If you were seeking to understand business tax filing, we hope this information has been insightful and will help you stay compliant. 

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