File Business Taxes

Small business owners may deduct expenses that are both ordinary and necessary. Ordinary expenses are those which are common and accepted for the type of business being conducted. 

Only business expenses qualify for tax deductions. In other words, an entrepreneur may not deduct their personal expenses. For items used for both business and personal reasons, taxpayers may generally deduct the business portion of the expense. 

Some common business deductions you may be able to claim as a small business owner include:

• Business start-up and organizational expenses.
• Business use of a vehicle.
• Home office expenses.
• Business-related travel and entertainment.
• Office or space rent.
• Utilities used by the business, including telephone and internet expenses.
• Office supplies.
• Interest on money borrowed for business purposes.
• Taxes attributable to the business.
• Business insurance premiums.
• Self-employed health insurance premiums.
• Employee pay and fringe benefits.
• Business retirement plan.

This list represents just some of the most common deductible expenses. Depending on the type of business you own, you may be eligible to claim other tax deductions. The rules surrounding tax deductions can be complex. When in doubt, seek guidance from a qualified tax pro.

Yes, typically, self-employed individuals and small business owners pay quarterly estimated taxes. If you don't pay or if you underpay, you may end up facing penalties and a larger tax bill when you file your annual tax return.

If you expect to owe over $1,000 in taxes by the end of the year, estimated quarterly tax payments are required. Corporations are expected to make quarterly tax payments if they expect to owe $500 or more in taxes at year end. Additionally, if you paid any taxes in the prior year, you are expected to pay quarterly taxes.

Knowing what taxes you need to pay and when can be confusing. To be on the safe side, paying quarterly taxes is recommended, unless it is your first year in business and you do not expect to make a profit.

If your state requires sales tax and you sell taxable items or services, you need to collect and pay sales tax. The frequency of sales tax payments varies by state, and sometimes even county. Talking with a tax pro can help you determine when your sales tax payments are due. If you sell to individuals or businesses located in other states, you may be required to collect and remit sales tax for those states as well.

The task is easier if you use sales technologies that will calculate and track sales taxes for you.

Collecting sales tax requires you to:

• Determine what taxes you may need to collect (usually your state and local tax agency has that information available).
• Apply for a sales tax permit if required.
• Discover which products or services that you offer require sales tax.
• Collect the tax when you make a sale.
• Keep meticulous tax records and make timely sales tax payments.

Collecting the proper amount of taxes is easier than it has ever been. Often point-of-sale systems can be used to collect and track your sales records for you. If you sell online, e-commerce services can calculate and collect sales taxes for you. If you do not have these technologies set up, or even if you do, a tax pro can help you understand your obligations so you can be confident you are doing it right.

If your company has employees, you need to withhold taxes from each paycheck as well as pay your own share of employment taxes. If you are self-employed, you need to pay both the employee and employer shares of employment taxes yourself in your quarterly estimated taxes. 

For employers, tax payments are made monthly or semi-weekly. Employers remit these taxes to the IRS for each employee:

• Withheld federal income tax.
• Social security.
• Medicare tax.
• Federal unemployment tax.

Self-employed persons are responsible for paying both the “employer” and “employee” portion of these taxes:

• Social security.
• Medicare.

You may still need to file a tax return even if you don’t believe you owe any taxes to the IRS. Self-employed individuals must file tax returns if their earnings from self-employment are $400 or more for the year. If you paid more in estimated taxes throughout the year than you actually owe because your earnings were lower than expected, you may be entitled to a tax refund – which you can only obtain by filing a return with the IRS.

Note that your state’s income tax filing requirements may differ from IRS rules. Talk to a tax pro if you need help determining your filing obligations.

S corporations, C corporations and partnerships should generally file a tax return each year, even if no tax is due.

The income tax return that your business is required to file depends on the type of business that you operate. Below are the various types of forms required for business income tax returns:

• Schedule C: This is filed by sole proprietorships. This type of income tax return is also filed by LLCs that have only one member and have not made an election with the IRS to file a different type of tax return. 
• Form 1065: Partnerships file this type of tax return. 
• Form 1120-S: S corporations file this type of tax return. 
• Form 1120: C corporations file this type of tax return. 

If your business has employees, you are required to file a Form W-2 for each employee and a Form W-3, which summarizes your Form W-2 data. Form 940 is required to report your federal unemployment tax liability. Form 941 or Form 944 is required to report federal income and FICA taxes. Businesses that hire independent contractors may be required to file Form 1099-NEC with the IRS. Depending on your business and the state that you operate in, you may be required to file sales tax forms.

There are a number of other less common tax documents that your business may be required to file. Connect with a tax professional to verify which tax forms are required or if you need help completing your business tax filings.

The only type of business income tax return that is filed with a personal tax return is Schedule C. If you operate a sole proprietorship, then you will file a Schedule C as part of your personal tax return. Single member LLCs also may file a Schedule C as part of their personal tax return.

If you own an S corporation, C corporation or partnership, then your business files an income tax return that is separate from your personal taxes. For S corporations and partnerships, the net loss or profit from the business will pass-through to your personal income tax return via a K-1. The K-1 is part of your business income tax return. If you are unsure how your business tax return impacts your personal tax return, talk to a tax pro to learn more.

S corporations, C corporations and partnerships are generally required to file an income tax return each year, even when these businesses made no income or lacked expenses. 

If you operate a sole proprietorship, you must file a Schedule C tax return if your earnings from self-employment are $400 or more for the year. 

In addition to income tax filing obligations, your business may need to file tax returns for payroll taxes, sales tax, franchise tax or other less common taxes. A tax pro can assist you with determining all of the business tax filing requirements for your business.