How to Prepare and File Your Small Business Tax Return

How Do Small Businesses Prepare Taxes?

Wondering how to prepare business taxes? The tax preparation process is generally the same for each small business type. You'll need to determine which forms from the IRS you'll need to file, be aware of the deadlines for your business type, gather your business expenses and income, and send any information you need. You may have to submit further information or request an extension.

Determine when taxes are due

First, the most important thing to do as a small business owner is to determine when your taxes are due. Since the COVID-19 pandemic, there have been several deadline changes for corporate and individual taxes. 

Prepare taxes according to your business entity

Second, small businesses prepare their taxes differently according to their company structure. This structure will determine which IRS Form is needed to prepare taxes for the most recent tax year. 

Corporation

C-Corps will need to file Form 1120 to prepare taxes as a company; S-Corps will need to file Form 1120S to prepare company taxes. Partnerships will file taxes using Form 1065; each partner will need to provide their information on the Schedule K-1 form for Form 1065.

Sole Proprietorship

Sole proprietors will file taxes with a Schedule C. Sole proprietors will also need a Form 1040 for their personal taxes; they will also need a Schedule C form and attach it to their Form 1040.

LLC

LLCs have more flexibility in preparing taxes. An LLC individual member will need either a Form 1040, Form 1040-SR, Schedule C, E, or F to file and prepare taxes. A single-member LLC that operates its business as an LLC but would like to file as a single-member corporation can submit its documents with a Form 8832.

Individual LLC members that operate their business as a corporation will use either a Form 1120 or Form 1120S. LLC members with multiple people can file taxes as a partnership by submitting Form 1065. These members can also file as a corporation by submitting Form 8832. However, LLCs with multiple members don't need to submit Form 8832 if they file taxes as a partnership.

After determining the forms needed to file taxes, you'll provide business records and documentation about your income. It is essential to keep items such as receipts for proof of business transactions and tax deductions. It would help if you tracked company expenses for potential tax breaks. 

Finally, in the process of filing taxes, you may have other companies that you'll contact for documentation. As this happens, you may want to note the purpose of what you need to report eventually. The IRS accepts various types of data. If you cannot file, prepare, and submit your taxes by the extended deadlines, consider asking for an extension.

How Much Does a Business Have to Make to File a Tax Return?

The amount a business must earn to file taxes depends on the business type. C-Corporations must report their income whenever there is a profit. However, if the C-Corp does not make a profit and instead makes a loss, then the shareholder will owe money.

Business owners operating as partners in a partnership, members of an LLC, shareholders within an S-Corp, or sole proprietors will have more things to consider. Your business may qualify for tax breaks after determining how much your business may owe. 

What is the Business Tax Rate for 2022?

The business tax rate for 2022 will depend on your business type. The tax rates for 2022 are below:

• C-corporations have a federal tax rate of 21% (at the entity level). This amount does not include the tax rate individual shareholders will pay for their respective earnings. 
• Limited liability companies, partnerships, S corporations, and sole proprietorships have a tax rate that ranges from 10% to 37%. The exact amount will vary based on the amount of pass-through income dispersed to members, partners, and shareholders.

Do I Have to Pay State and Local Taxes for My Business? 

Whether you have to pay state and local business taxes will depend on your business structure. 

State Income Taxes

Corporation structures will dictate if you pay state income tax. Regardless of whether your business is a corporation, LLC, or sole proprietor, you may have to pay state taxes depending on your location.  

There are at least two common state and local taxes that business owners must pay: employment tax and income taxes. Employment taxes include temporary disability insurance, unemployment insurance taxes, and workers' compensation insurance.

Property Taxes

Business owners must pay property taxes to the local tax officials for businesses that own the property they occupy. In some cases, only the real estate in which the company operates is taxed. In other cases, the real estate and property used by the business are taxed. This is usually in the city or county where you conduct business. The tax itself is based on assessed value. You will receive information about the assessed value of your property annually.

Sales Tax

Small business owners will need to pay and report state sales taxes to businesses that operate in a state that has state income taxes. Business owners in most states will collect sales tax and pay it to the state department of revenue. Online business owners may have to pay sales tax for certain types of sellers.

Work With the Professionals

Preparing and filing taxes are among the most important things you can do within your business. Work with an accounting and tax professional to ensure you don't encounter any mistakes with filing or preparing your small business taxes. Don't hesitate to seek advice from the experts to file and prepare your small business taxes.