How to Do Taxes as a Small Business

December 28, 2022

Small business tax filing is simple with the right preparation. Learn what qualifies as small business tax deductions and what you need to get started.

There's a lot to remember and do when you're a business owner. But there are also a lot of perks to owning your own business! With small business resources like this small business tax filing guide, you can keep better track of everything you need to do and all the taxes you need to pay as a entrepreneur. Whether you're starting a business for the first time or you've been working at it for ages, it never hurts to brush up on everything you should be doing as a business owner. 

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Business Tax Terminology 

The very first thing you need to do is understand all of your federal, state, and local tax requirements and tax obligations as a small business owner. Having a full understanding of what is required of you will keep you from making mistakes and missing anything important. A big part of knowing all your tax obligations is knowing all your business tax terminology. 

Employer Identification Number (EIN): Every taxpayer has a social security number that functions as a type of government ID or tax ID when filing taxes. Businesses also need this tax ID number. An Employer Identification Number or EIN is like the social security number for a business. This number functions as the business's tax identification number. 

Income Tax: Almost every state requires that businesses pay income tax on any income the business earned or received that year. Just like how individuals have to file taxes for their income over the past year, businesses also need to file taxes each year for the same thing. 

Self-Employment Tax: If you are an owner of a business, then your individual tax filing will also include self-employment taxes. This will help you be covered by Social Security or Medicare as a self-employed business owner.

Employment Taxes: Does your small business have employees aside from yourself? Then you'll need to file taxes for your employees including Social Security taxes, Medicare taxes, federal income tax withholdings, federal unemployment tax (FUTA).

Excise Tax: If your small business sells or manufactures certain products or uses certain types of equipment, facilities, or products, then you might be subject to something called excise tax. Excise taxes are taxes imposed during manufacturing rather than during the sale. 

Property Tax: If your business owns property, then that property could be subject to property taxes. For instance, if you own an office building for your business, then your business might need to pay property taxes on that building. 

Sales and Use Tax: Depending on the state your business operates in, your business may need to pay taxes on the sale of the goods and services you offer your customers. This can also depend on what goods or services your business sells. 

Tax guide for small businesses on a newspaper

How to File Small Business Taxes

If you own a small business, then when tax season comes around at the beginning of each year, you need to remember not only to file your personal taxes, but your small business taxes as well. 

Step 1: Gather Small Business Tax Forms

Gather together all the small business tax forms that relate to your business. You'll need all of these tax documents in order to file your small business tax return. Examples of these tax documents include: 

Form SS-4: This form is your business's application for an Employer Identification Number (EIN). This number will act as your business's tax ID number. 

Form 1040 Schedule C: This form will report to the IRS all of your business's annual income and loss, much like how the 1040 Tax Form reports income for individuals. Depending on the size and type of business you have, you might also need to fill out a different 1040 Tax Form Schedule like Form 1040 Schedule C-EZ, Form 1040-ES, Form 1040-SE, or 1040 Schedule F Tax Form if you're a farmer. 

Form 1120S: This form reports the annual income, profit, loss, deductions, and tax credits specifically for an S corporation. This means that your business has elected to be taxed under Subchapter S of Chapter 1 in the Internal Revenue Code. If you are a shareholder of an S corporation, then you'll also need the 1120S Schedule K-1 Tax Form when you file taxes. 

These are some of the basic small business tax forms you should be aware of, but there are many others that might also apply to your small business: 

  • Form 1045
  • Form 720
  • Form 4562
  • Form 8829
  • Form 5329
  • Form 8283
  • Form 8606
  • Form 8903
  • Form 7004
Tax forms

Step 2: Find the Right Tax Return Filing Form

Which tax return form your business should use depends on what kind of business you operate. If your small business is a sole proprietorship, or an LLC with you as the sole owner, then you'll need a Schedule C Tax Form. This form is then attached to your personal income tax return. If your business is a corporation then you'll need to file a separate tax return for the business with a 1120 Tax Form or a 1120S Tax Form if your business is an S corporation. 

Step 3: Fill Out and File Your Business Tax Return

Once you have all your small business tax documents gathered and you know which business tax return you're supposed to use, you can get to work on filling out the Schedule C or 1120 Tax Form. Using a tax preparation service can make this process a lot easier on yourself. It can also potentially help you keep tax deadlines better and get your tax refund sooner. 

Small Business Tax Deductions

Owning and operating a business can get expensive. Thankfully there are small business tax deductions that you might qualify for. 

Energy Tax Incentives: Some states will offer tax incentives for making your business more energy efficient. Not only can this help make your business and the planet better, but you can potentially get some great tax incentives for your efforts. 

Disaster Tax Relief: If your business has been the victim of a major disaster, natural disaster, or emergency, then your business might be eligible for special tax relief in disaster situations.  

Tax Deductions for Charity Donations: Does your business donate to charities? Does your business have nonprofit operations or charity efforts? Charitable efforts like donations are often eligible for tax deductions, so long as they meet the IRS's requirements. 

In Conclusion, 

Owning and operating a personal business is already stressful enough without adding taxes on top of everything. That’s why many businesses, even small businesses, will invest in professional tax preparation services. That way, you can focus on the ins and outs of your business rather than filling out endless tax forms every year. Even very small businesses like freelancers and independent contractors can benefit from taking advantage of professional tax filing services for their business.