Gather Records
Have all the records in hand that report your business earnings and expenses before you start filling out any tax forms.
For example, you may be using a computer program or spreadsheet to keep track of all transactions during the year, making calculating your income and deductions easy. There are also tax programs that can import information directly onto a tax return.
Use The Right Form
The IRS has many types of forms for small businesses. Find the one that fits your business entity, or get help from the IRS, your accountant or tax preparer.
If your small business is a sole proprietorship, you’ll need to report all of your business income and expenses on a Schedule C attachment to your personal income tax return. The same goes if you’re the sold owner of an LLC.
If you use a corporation or treat your LLC as one, you must prepare a separate corporate tax return on Form 1120, also called a U.S. Corporation Income Tax Return. A tax program can fill in the right forms when you answer questions about your business.
Fill Out The Form
Now that you have the correct form and all of your financial records in front of you, it’s time to start filling out your Schedule C or Form 1120.
Schedule C is a simple way to file business taxes because it’s only two pages long and lists expenses you can claim. Expenses are subtracted from business earnings to come up with net profit or loss. That number is then transferred to your personal income tax form and is included with all other personal income tax items.
You calculate your taxable business income in the same way on Form 1120, but it requires more details that may not always apply to a small business. Form 1120 will be filed separately from your personal income tax return.
Meet The Deadlines
Some tax filing deadlines can differ from what you’re used to with the IRS. If you use a Schedule C, it becomes part of your Form 1040 — the official document U.S. taxpayers use to file annual income tax returns — so no separate filing deadlines apply. It generally has the same April 15 deadline.
But if you file Form 1120, it must be filed by the 15th day of the third month following the close of the tax year, which is usually March 15. You can’t send this form to the IRS with your personal income tax return.
It’s important to determine when your tax year starts, either in a calendar year or a fiscal year. A calendar year is 12 consecutive months starting Jan. 1. A fiscal year ends on the last day of any month except December.
*This article is for informative purposes only and should not be construed as tax advice. Consult your tax advisor regarding requirements for your particular business.
