Every adult individual and business in the U.S. is expected to prepare and file an income tax return each year. And every year, many businesses struggle to navigate the tax system’s complexities and determine their obligations.
Whether you handle your paperwork alone or hire an accountant to help with your small business taxes, you know the stakes are high during tax season. You don’t want to pay more taxes than necessary, but you also don’t want to leave yourself open to an audit.
One way to help yourself stay on track with your tax preparation is to check all the different forms you need to file. This can be especially important because of how complicated business taxes can be.
The precise forms you use to file the federal income taxes will depend on how your business is organized and structured for tax purposes. Is your business a sole proprietorship, a partnership, a corporation, or a limited liability company? Each business structure requires a different tax form and may have different tax filing deadlines.
What Business Tax Forms Do I Need to File?
As a business, you pay tax according to your income and your business structure. Your specific business tax form requirements may vary, but these are the main forms many businesses in the U.S. need to file to meet their federal tax obligations:
- Form 1040 Schedule C: Profit or Loss from Business (Sole proprietorships)
- Form 1040 Schedule E: Supplemental Income and Loss (Other pass-through income)
- Form 1065: U.S. Return of Partnership Income
- Form 1120: U.S. Corporation Income Tax Return
- Form 1120-S: U.S. Income Tax Return for an S Corporation
Those are the forms to file for tax season once a year, but there are also a few other forms you may need to fill out at other times of the year. The most important one for employers is Form 941, Employers Quarterly Federal Tax Return. You should file this quarterly to report and pay your estimated employment tax, including Social Security and Medicare taxes.
How You File Taxes Depends On Your Business Type
Some business structures are required to file a tax return specifically for the business entity. In contrast, some structures allow you to include all business income on your personal income tax return. This is the first big question to answer as you prepare to file your taxes.
You can file your personal and business tax return together if you are considered a sole proprietor or have rental income for a property you are the sole owner of. Being a sole proprietor means that you are the single responsible owner of your business endeavor.
On the other hand, you will need to file a separate business tax return if you are operating a partnership owned by two or more individuals. You will also need to file a separate business tax return if you own a corporation, whether that is a C corporation or an S corporation.
Types of Entities:
Make sure you understand your company’s tax status and then make a plan to meet your obligations!
The majority of small businesses are sole proprietorships. If you are operating the business under your name without creating a legal entity, you are operating as a sole proprietorship. This means that the business does not exist apart from you as an individual, so you have personal liability for the income and expenses.
As a sole proprietor, you will file IRS Form Schedule C: Profit or Loss from Business. Schedule C is filed alongside Form 1040, the standard form for a U.S. Individual Income Tax Return. Both will be due by the standard filing deadline of April 15.
If you have any income related to ownership of a rental property, you will need to report that income on Form Schedule E, in addition to your other forms.
Corporations count as their own taxable entity apart from the individuals that own and operate it. C corporations must file Form 1120, U.S. Corporation Income Tax Return each year, while individual owners and employees file separate returns for their own personal income tax, which will depend on their wages and dividends from the corporation.
For companies that follow the calendar year, as opposed to a distinct fiscal year, their tax return is due by April 15.
A partnership is a business owned directly by two or more people or organizations. The income an owner receives from a partnership will pass through their business so that you will report it directly on Form 1040, your personal tax return.
Business activity from a rental property is generally reported on Form Schedule E, page 1. Meanwhile, income from any flow-through entity (i.e., partnership or an S corporation) or a fiduciary return (i.e., trust or estate) is reported on Form Schedule E, page 2. Both of these are filed as extended pieces of your Form 1040.
Partnerships must also report their income on IRS Form 1065, U.S. Return of Partnership Income, but you don’t pay any taxes at this stage. This is true for both limited partnerships and general partnerships, which the IRS treats the same.
An S Corporation is a corporation that files IRS Form 2553 to be recognized with a special tax status by the IRS, allowing owners to avoid double taxation and report their income individually. However, S Corporations still file Form 1120-S, U.S. Income Tax Return for an S Corporation.
An S Corporation is considered a flow-through entity, but Form 1120-S is filed separately. This means that the business only has to report its income and that the owners will report their share of the overall business income directly on their personal tax returns.
For a company following the calendar year, the income tax return is due by March 15. Each shareholder will receive Form Schedule K-1 to report his/her prorated share of the income or loss to include on their personal income tax return.
The prorated income or flows to the shareholder’s income tax return is reported on Form Schedule E, attached to Form 1040, U.S. Individual Income Tax Return.
Limited Liability Company (LLC)
A limited liability company, or LLC, is a legal entity organized under state law. For an LLC to be taxed under federal law, it usually takes on another business structure’s characteristics. For a single-member LLC, the default is to be classified as a sole proprietorship, which would mean that the federal government disregards the LLC and taxes you directly.
For a multi-member LLC or a limited liability partnership, the default tax classification is a partnership. That means you would file Form 1065, U.S. Return of Partnership Income, to report your income, but you would only pay taxes on that business income on your personal tax return.
For companies following the calendar year, the business income report would be due March 15. Each limited partner and general partner would receive Form Schedule K-1 to report their prorated share of the income or loss on Form Schedule E as a part of their personal Form 1040.
Alternately, an LLC that files Form 8832 can elect to be taxed as a C Corporation. As a next step, an LLC can file Form 2553 to be recognized as an S Corporation. However, certain states like New York and New Jersey may require a separate S Corporation form.
As you can see, getting your tax paperwork straight can be a tricky process. Seek out a tax professional you can trust before tax season, so you have time to get things done right. An accountant can help you maximize your returns and minimize your risk exposure.
As frustrating as these steps may be, they’re essential for your business’s health and longevity. Do what it takes to protect your company’s future.