How To File Small Business Taxes as an Owner

Filing taxes as a small business owner can be daunting due to the often complex way many companies are set up and the challenges of interpreting tax laws. Fortunately for small business owners who use pass-through entities or file their taxes on Schedule C (Form 1040), there are tips and strategies to help make it easier.

Business taxes can be challenging for owners who file as sole proprietorships, partnerships, limited liability companies, or S corporations. Knowing how to file taxes for small business owners can save you time and much-needed capital that you can use to run your business. Small business owners typically file their business taxes using Schedule C along with their personal returns (Form 1040).?

How Much Are Small Business Taxes?

The amount a small business owner is required to pay to the federal government varies. Calculating this figure involves looking at your total income, the number of deductions you’re eligible to take, and whether you owe any taxes for a previous year.?

Depending on how your business is structured (and which deductions you take), your business may pay one of the following tax rates:?

C Corporation: 21%

If your business is a C corporation or elects to be treated (and taxed) as such, your corporation is subject to a flat 21% tax rate. C corporations pay taxes on their net income, which is gross income minus any allowable deductible business expenses such as salaries or business costs. The 2018 Tax Cuts and Jobs Act did away with tax brackets for C corporations.?

Pass-Through Entities (Sole Proprietorships, Partnerships, Limited Liability Companies, and S Corporations): 0% to 37%

Pass-through entities are businesses that report taxes on a taxpayer’s individual tax return and are not considered separate legal entities. Pass-through entities such as sole proprietorships, partnerships, limited liability companies, and S corporations have various deduction opportunities in addition to allowable business expenses. Currently, pass-through entities can deduct up to 20% of their net business income. This is designed to help with the growing costs of running a small business in the United States.?

Factors that affect your small business income tax bill include:

• Whether your business generated a profit or experienced a loss during the tax year
• Business filing status (pass-through entity or C-corp)
• How much taxable income your business generates during the tax year
• Any business expenses/deductions?

Additional Taxes Small Businesses May Be Required to Pay

?Now that we’ve briefly discussed how to file taxes for small business owners, let’s talk about additional taxes they may be subject to:?

Sales Tax

If your business sells physical goods (such as toys or candles) or you operate a physical store or retail location, you may have to pay sales tax on goods your business sells. Many states and local governments such as cities and counties collect sales tax. Generally, these taxes are collected by the seller from customers during a transaction.?

Payroll Tax

Another tax you may have to pay is payroll tax. Business owners who have employees are required to collect Social Security, Medicare, and unemployment taxes on employees’ wages. If you don’t withhold this amount, you will face fines and likely have to pay the entirety of the owed funds.?

Property Tax

If your business owns property, it is required to pay yearly property taxes. State and local governments require business owners who own property to pay a yearly fee based on the value of the properties they own and any physical assets (such as business equipment and supplies).??

Self-Employment Tax (SE)

?If your business is set up as a pass-through entity, you are typically required to pay 92.35% of your net earnings from self-employment. This holds true if classified as a sole proprietor (independent contractor), single-member LLC, or a partner in various forms of partnerships.?

Tax Preparation Basics for Small Business Owners

Several online tax preparation services streamline the process for small business owners. Before sending off your tax forms via these preparation services, ensure you have calculated the amount you’re owed (or that you’ll need to pay) according to your business structure and its allowable deductions.?

Determine the Structure of Your Business

?How a business is legally structured determines which section of the tax code a business will pay taxes under. Your business may be structured as a stand-alone entity (with shareholders and annual meetings) or a pass-through entity, whereby a business’ income passes through to its owners or investors.?

Understand Deadlines

Small businesses file their income taxes alongside their personal taxes. The due date is the same as your personal taxes, typically April 15 (unless you file for an extension). In 2022, the due date was April 18. If a given year’s tax deadline falls on a holiday or weekend, taxes are due the following business day.?

Gather Your Financial Records

Before submitting your taxes to the IRS, ensure you have copies of all relevant documentation. This includes any receipts for services your business has paid for, employee documentation and 1099s, and any profit and loss statements that show your business expenses and net income figures.?

Complete the Proper Forms

?The Internal Revenue Service provides small businesses with specific forms they need to fill out, sign, and return, which are specifically tailored to the tax situations of small business owners.?

Forms you’ll need as a sole proprietor or single-member LLC are:?

• Schedule C, Profit and Loss from Business
• Instructions for Completing Schedule C
• About Publication 324, Tax Guide for Small Business
• Schedule SE – Self Employment Tax
• Instructions for Schedule SE (Form 1040)

Final Thoughts on Small Business Taxes

Whether you’re a small business owner looking to prepare your taxes early or you’re in the middle of compiling your financial records after filing an extension of your federal taxes, it is important to get the right forms to complete your taxes on time and accurately.?

Taxes for small business owners don’t have to be a headache if you accurately record and organize your business's financial records throughout the year.??

Top Takeaways

How to File Taxes as a Small Business Owner

• Small business owners typically file their business taxes using Schedule C along with their personal returns (Form 1040).?
• Small businesses pay additional taxes depending on whether they own property, have employees, or sell physical goods or services.
• Many factors determine a business's taxable income, including any profit during the tax year and any exemptions or deductions you choose to take.?

(Reporting by NPD)