No matter how local your small business may be, paying federal taxes is a huge part of keeping any business legally compliant. As you likely already know, you don’t want to neglect your tax obligations or mislead the IRS, which is the agency that oversees the assessment and payment of federal taxes. Filing incomplete or incorrect information can lead to financial and legal consequences for your business, as does failing to file your federal taxes at all.
Although properly fulfilling your federal tax obligations is a serious undertaking, it doesn’t have to be an overwhelming task. The following is a general introduction to federal tax obligations for small businesses, as well as which of our products and services can help make the process easier.
One of the most important factors in determining your business’s tax obligations is identifying the structure of your business. Federal tax law has different requirements for sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. LLCs are a popular business structure because they’re normally easier to form and run than corporations, but they can provide more legal protection than sole proprietorships and partnerships. Your federal small business tax obligations depend not only on whether you have an LLC or other business structure, but also on the kind of LLC you operate.
Owners of LLCs are called members. If an LLC has only one member, the IRS treats it like a sole proprietorship, meaning the business’s owners report their business income on their personal income tax returns. Unless your LLC or sole proprietorship has employees or engages in certain financial activities, you probably don’t need an Employer Identification Number (EIN) to pay your federal small business taxes. An EIN is a tax identification number the IRS assigns to a business so the IRS can identify that business when it submits tax documents or payments.
If you don’t have an EIN but think you might need one, we have a service that can obtain one for you.
Because the IRS normally taxes LLCs the same way it taxes sole proprietorships, your LLC income taxes are usually due the same day as your personal income taxes (normally April 15).
Like dealing with any other government agency, dealing with the IRS means you’re probably going to have to file a lot of paperwork on a regular basis. The following forms are staples in a single-member LLC’s tax filing requirements:
If you run a business that you own by yourself, or if you’re a solo, independent professional who provides services for money, you typically file a Schedule C (Form 1040) to report the profits or losses of your business to the IRS.
Even if your business doesn’t require an EIN because it doesn’t employ other people, you need to pay employment taxes on the business income you pay to yourself. You file Schedule SE (Form 1040) to report your net earnings from your LLC. This is an IRS form, but the Social Security Administration uses it to determine your social security benefits. There is no age limit for filing a Schedule SE form. You must file this form even if you’ve already started receiving Medicare and Social Security.
Though you likely still need to file Schedule C and Schedule SE for your business earnings and losses, you can also report your business income and loss information on your personal income tax Form 1040.
If your LLC has more than one member, the IRS normally taxes your business as a partnership. Also, your multi-member LLC likely needs an EIN. If your business is taxed as a partnership, it’s subject to pass-through taxation. This means that the partnership doesn’t pay income tax. Instead, each member (or “partner”) pays taxes for their portion of the business’s losses and profits.
LLC members need to submit multiple forms and pieces of information to the IRS to comply with federal tax requirements. These forms and information include:
Each member of the LLC must report their own Schedule K-1 information. They must also file their own Schedule SE and Form 1040.
You file Form 1065 to report your multi-member LLC’s gains, losses, income, credits, and other information to the IRS. Your Form 1065 is due by the 15th day of the 3rd month after your fiscal year ends. If your fiscal year ends on December 31 (a calendar year), your filing deadline is March 15.
You use your Schedule E (form 1040) to report your losses and income from your multi-member LLC or partnership. To report your share of LLC losses and income on your Schedule E, follow the instructions and use the information on your partnership Schedule K-1. You should receive a Schedule K-1 from your LLC.
Just like with single-member LLC’s, you likely need to file a Schedule SE. This is to report the amount of income your LLC pays you, so you can pay the proper amount of self-employment tax. Your requirements for filing this form depend on the type of partnership your LLC members have.
Owners of a multiple-member LLC can also report information from their other business tax forms on their Form 1040 personal income tax return.
Corporations are business entities that are owned and funded by shareholders. While raising capital and transferring ownership of a corporation might be easier, the tax rules can be harsher. Many corporations are subject to double taxation, meaning the IRS taxes the corporation on its income and then taxes the corporate shareholders for the distributions they receive from that income. Only C corporations are subject to double taxation. If you’re an owner of an S corporation, you’re not subject to double taxation, but there are limits on the amount and kind of shares you can sell. For more protection against personal tax liability, LLCs can choose to be taxed as S corporations.
There are certain forms you’ll likely need to file to properly pay your corporation’s federal small business taxes. These forms vary depending whether you’re paying taxes as a C corporation or an S corporation.
Form 1120 helps determine your C corporation’s income tax liability by reporting corporate gains, income, credits, losses, and deductions.
In general, Form 1120 is due the 15th day of the 4th month after your corporation’s tax year ends. However, this due date can change based on certain corporate characteristics. Depending on your corporation’s age, status, and fiscal tax year, your corporation may be subject the following filing deadlines:
If your due date falls on a weekend or legal holiday, you can file on the next business day.
Form 1120-S is an income tax return for business entities that choose to be S corporations. You report corporate losses, deductions, credits, gains, and income on this form. This form also needs to include an S corporation Schedule K-1 for each shareholder to report their share of the corporate gains and losses.
In general, an S corporation must file its Form 1120-S by the 15th day of the 3rd month that follows the end of its tax year. This due date is March 15 for tax years ending on December 31. Like with C corporations, the due date for an S corporation’s income tax return can vary when there are certain circumstances. The following filing deadlines apply to certain S corporations:
Again, you can file on the following business day if your due date falls on a legal holiday or weekend.
As you can see, there are a lot of numbers and math involved in filing business income tax returns. You’re likely going to need a lot of supporting documents to properly report your business’s gains and losses. To help keep your returns accurate and honest, you want to gather documents that provide the following applicable information:
This can be a lot of information to keep track of, and it’s important to have it ready for tax season. You want to keep this information organized and easily accessible.
We can help you keep track of your business’s finances with our ZenBusiness Money App, which lets you easily send custom invoices, accept credit card and bank transfer payments, and manage your clients from an easy-to-use dashboard.
As an entrepreneur, you probably enjoy being able to fulfill many business obligations on your own. If you’re the owner of a sole proprietorship that doesn’t sell goods, you might be able to file your federal business income tax documents online with no outside help.
But if you run any other kind of business, it’s a smart idea to consider hiring a certified tax professional to ensure your business taxes are properly done. Even if you can file your taxes on your own, investing in the help of a certified tax professional can take the guesswork out of keeping your business financially sound and legally compliant with federal tax laws. If you need assistance finding a certified tax professional who can suit your needs, you can consult the IRS’s guide on tax preparer credentials and qualifications, which can be found on its website.
You’ve probably also noticed that paying your federal taxes involves a lot of paperwork and deadlines. This information can be hard to keep track of while you’re building an enterprise. We can help with this. Our Worry-Free Compliance service keeps track of your business’s important compliance and filing events and alerts you when filing time is near. Also, the dashboard on our ZenBusiness Money App helps you manage your invoices and payments. This way, they’re easy to access and ready to review when tax time comes. Whether you’re at the formation stage of your business journey, the middle, or beyond, we have a range of products and services to help get your dream up and running as smoothly as possible.
Looking for more small business tax information? Our Small Business Tax Hub offers helpful tips on tax deductions, EINs and local state taxes. Or check out our article on the Fresh Start Program to see if you might qualify.
Disclaimer: The content on this page is for information purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
The minimum threshold for your business tax obligations depends on your business structure and business activities.
Your federal small business tax rate depends on the structure and nature of your business.
You can deduct ordinary and necessary business expenses. These include expenses for travel, bad debts, depreciation, employee wages, insurance, professional services, home business activities, rent, and state and foreign taxes.
Your business tax obligations depend on the structure and nature of your business.
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