When tax season comes rolling into town, most business owners already know they’re in for a bumpy ride, but things don’t necessarily have to be this way.
For most, it’s the fact that they’re required to submit a number of different forms throughout the year, and keeping track of all this documentation can be tedious if you’re just starting out.
Add on top of that that things will vary based on your business structure, industry, the number of employees you’ve taken on, and law revisions, and it soon becomes much more complicated than you’d ever imagined.
Thankfully, there is a great deal of online resources to help you gain a better understanding of these tax forms and become an experienced business owner.
We’ll help you get all the information you need and guide you through the most common tax forms you’ll encounter as a small business owner.
It’s hard work
It was reported in 2021 that the average business owner spends a minimum of 23 hours filing their tax returns every year, meaning that an entire day is wasted filling out documentation and looking for leaks in their finances.
In fact, most of these business owners used a professional to do the work for them, at least for their most recent tax returns, with record keeping being the most time-consuming process.
By understanding which tax forms you’re going to file for each expense, you can save yourself hours of your precious time and even save some money on a professional tax preparer, as they’ll have less work to do, sometimes even no work at all, as you’ll be capable of filing your taxes on your own.
Generally, the IRS classifies taxes as income, estimated, self-employment, employment, and excise taxes, and we’ll try to give you a low-down on how all of these work.
Income tax
If you’re running a sole proprietorship, partnership, or LLC, the most common tax forms you’re going to encounter are Form 1040, Individual Income Tax Return, or Form 1040-SR, which is a tax return form for senior citizens in the US.
This is because all of the aforementioned tax entities pass their income and losses to the individual running them, requiring an individual tax form, and in certain cases, you may also be required to submit a Schedule C, which refers to your profits and losses from the business you’re running.
In the case of your company being a partnership, you’ll also be required to file an information return form, which will cover a wide array of partnership data, ranging from income and gains to the tax deductions and losses your business suffers.
That being said, the actual tax you owe or are owed will be filed on your personal tax returns, with each partner getting a copy of Form 1065.
Estimated tax
Usually, the government will require sole proprietors, partners, and shareholders of S corporations to pay tax installments every year if they expect to be owing the federal government upwards of $1k.
Form 1040-ES is the most commonly used one for these calculations, and if you’re a non-resident alien in the US, Form 1040-ES (NR) will be the one you need.
Estimated tax payments from C corporations are made using the Form 1120-W, which separates the business owner from the corporation as a tax entity, and the taxes will be taken out of their paycheck using their W-4 information
Employment and self-employment tax
Anyone filing with a pass-through method will have to pay self-employment tax on their yearly earnings, including their Medicare and Social Security tax.
This information is provided using Schedule SE, and business owners of corporations or S corporations structured like an LLC will have their payroll taxes deducted from their salary or yearly wages.
On the other hand, businesses with employees, regardless of what type of tax entity they file as, have to file a Form 941 or Form 943, based on whether they’re filing for their quarterly or yearly Federal Tax Returns.
On top of this, every employer must provide their workers with a W-2 form whereas the Social Security Administration will receive a W-3 for each one of the employees.
If there were any vendors, freelancers, or independent contractors who earned more than $600 from your company this year, they may be required to provide a Form 1099-NEC to the IRS.
Excise tax
Finally, we have the tax that the IRS imposed on various goods, activities, and services that your business conducts within a single tax year.
You may find that there is a great deal of different excise taxes, and you’ll want to carefully study all of them before submitting your Form 720, which is the Quarterly Federal Excise Tax Return.
Always remember that every dollar counts, and keep in mind that the smallest of leaks in your finances can create some serious issues during tax season.
