As a business owner, taxes are an inevitable part of running your company. However, filing taxes can be a challenging task, especially if you’re not familiar with the process. That’s why our hardworking and knowledgeable CPAs at Steward Ingram & Cooper, PLLC are here to help business owners understand how to file business taxes.
From discussing tax planning and filing strategies to making the process as efficient and manageable as possible, our small business accountants want to help you understand tax laws and organize your finances. Whether you’re a seasoned entrepreneur or just starting out, we hope to provide you with valuable insights and practical tips to help you navigate the complex world of business taxes.
Examples of Business Taxes
Business taxes refer to various taxes that companies and organizations are required to pay to the government.
Here are some examples of business taxes:
- Corporate Income Tax: This is a tax levied on the profits earned by a business entity. The income tax rate varies depending on the jurisdiction and the amount of income earned.
- Sales Tax: A tax on the sale of goods and services, this is a consumption tax that is usually calculated as a percentage of the sale price. The rate and application of sales tax may differ across different states and countries.
- Employment Taxes: Employers are required to withhold certain taxes from employee wages, including Social Security tax, Medicare tax, and federal and state income tax. Employers must also pay their own portion of Social Security and Medicare taxes for each employee.
- Property Tax: This tax is levied on the value of the real estate and personal property owned by a business entity.
It’s important for business owners to understand the different types of taxes for small businesses they may be subject to, as well as their rates and regulations, to ensure they are compliant with the law and avoid any potential penalties or fines.
Taxes for Specific Types of Business Entities
Taxes for specific business entities refer to tax laws and regulations that apply to certain types of businesses based on their legal structure and ownership. Different types of businesses, such as sole proprietorships, partnerships, limited liability companies (LLCs), and corporations may be subject to different tax rules.
What is a Limited Liability Company (LLC)?
An LLC is a hybrid business entity that combines the liability protection of a corporation with the tax benefits of a partnership. Owners of an LLC are called members, and their personal assets are generally protected from business debts and obligations.
How to File Business Taxes for LLC
Limited Liability Companies (LLCs) are considered pass-through entities, which means that the business’s profits and losses are passed through to the individual owners, who report them on their personal tax returns.
Here are some steps for how to file business taxes for an LLC:
- Obtain an Employer Identification Number (EIN) from the IRS.
- Determine the LLC’s tax classification and file taxes accordingly. Depending on the number of members in the LLC, it may be taxed as a sole proprietorship, partnership, S-corporation, or C-corporation.
- File Form 1065, the U.S. Return of Partnership Income, if the LLC is taxed as a partnership.
- File Form 1120S, the U.S. Income Tax Return for an S Corporation, if the LLC is taxed as an S-corporation.
- Each LLC member will receive a Schedule K-1, which reports the member’s share of the LLC’s income, deductions, and credits.
- Include the K-1 information on the individual member’s tax returns.
What are Corporations?
A corporation is a separate legal entity from its owners, known as shareholders. Corporations can be taxed as either a C corporation or an S corporation. C corporations pay taxes on their profits at the corporate level, and shareholders pay taxes on any dividends received. S corporations are pass-through entities that allow profits and losses to be passed through to the shareholders’ personal tax returns.
How to File Business Taxes for S-Corporation
S-corporations are considered pass-through entities, which means that the corporation’s income and expenses are passed through to the individual shareholders, who report them on their personal tax returns.
Here are some steps for how to file business taxes for an S-corporation:
- Obtain an EIN from the IRS.
- File Form 1120S, the U.S. Income Tax Return for an S Corporation, which reports the corporation’s income, deductions, and credits.
- Each shareholder will receive a Schedule K-1, which reports the shareholder’s share of the corporation’s income, deductions, and credits.
- Include the K-1 information on the individual shareholder’s tax returns.
What is a Sole Proprietorship?
This is a business owned and operated by one individual who is personally liable for all business debts and obligations. A sole proprietorship is easy to set up and allows the owner to have complete control over the business. However, it does not provide any legal protection for the owner’s personal assets.
How to File Business Taxes for a Sole Proprietorship
Sole proprietors report their business income and expenses on their personal tax returns using Schedule C.
Here are some steps for how to file business taxes for a sole proprietorship:
- Obtain an EIN from the IRS if required.
- Complete Schedule C, which reports the sole proprietor’s income and expenses.
- Include the Schedule C information on the individual’s personal tax return.
What is a Partnership?
A partnership is a business owned and operated by two or more individuals. Partnerships can be general partnerships or limited partnerships. In a general partnership, all partners are personally liable for the business’s debts and obligations. In a limited partnership, there are general partners who have personal liability and limited partners who have limited liability. Partnerships are also considered pass-through entities for tax purposes.
How to File Business Taxes for a Partnership
Partnerships are also pass-through entities, which means that the partnership’s income and expenses are passed through to the partners, who report them on their personal tax returns.
Here are some steps for how to file business taxes for a partnership:
- Obtain an EIN from the IRS.
- File Form 1065, the U.S. Return of Partnership Income, which reports the partnership’s income, deductions, and credits.
- Each partner will receive a Schedule K-1, which reports the partner’s share of the partnership’s income, deductions, and credits.
- Include the K-1 information on the individual partner’s tax returns.
How to Determine My Taxable Income
Taxable income is the portion of your total income that is subject to federal and/or state income taxes. It is determined by subtracting eligible deductions, exemptions, and credits from your total income.
Here are some steps to help you determine your taxable income:
- Identify your gross income: This includes all income you received during the tax year, such as wages, salaries, tips, interest, dividends, rental income, and capital gains.
- Determine eligible deductions: Deductions reduce your taxable income and can include expenses like mortgage interest, charitable donations, and business expenses. You can take either the standard deduction or itemize your deductions, depending on which option gives you the greater tax benefit.
- Determine eligible exemptions: Personal and dependent exemptions reduce your taxable income. The exemption amount is subtracted from your adjusted gross income (AGI), which is your gross income minus certain adjustments.
- Calculate your taxable income: Subtract your eligible deductions and exemptions from your gross income. The resulting figure is your taxable income.
- Determine your tax liability: Once you have calculated your taxable income, you can use a tax table or tax software to determine your tax liability. Your tax liability is the amount of tax you owe to the government.
Tax laws and regulations can change, and there may be additional factors that affect your taxable income. Consulting a tax professional or using tax preparation software can help ensure that you accurately determine your taxable income and comply with tax laws.
Documents Needed to File Business Taxes
When learning how to file business taxes, it is important to gather all the necessary documents and information to ensure accurate and timely reporting.
Here are some documents you may need to file your business taxes:
- Employer Identification Number (EIN): Your EIN is a unique identifier issued by the IRS and is necessary to file your business taxes.
- Income statements: These include all revenue generated by your business during the tax year, including sales receipts, invoices, and 1099-MISC forms.
- Expense receipts and invoices: These include all costs associated with running your business, such as rent, utilities, supplies, equipment, and salaries or wages.
- Bank and credit card statements: These documents are used to reconcile your income and expenses and to ensure accurate reporting.
- Depreciation schedules: These show the value of business assets and their depreciation over time.
- Business entity information: This includes information about your business structure, such as whether you are a sole proprietor, partnership, LLC, or corporation.
- Tax forms: Depending on your business structure, you may need to file specific tax forms, such as Form 1065 for partnerships or Form 1120S for S-corporations.
- Prior year tax returns: Having prior year tax returns can help ensure accurate reporting and can provide important information about carryovers, deductions, and credits.
- State and local tax forms: Depending on your location, you may be required to file additional state and local tax forms.
It’s important to keep these documents organized throughout the year and to have them readily available when it comes time to file your business taxes. Additionally, consulting a tax professional who works with business owners can help ensure that you have all the necessary documents and information to file your business taxes accurately and efficiently.
How to Request a Tax Extension
If you are unable to file your tax return by the deadline, you can request a tax extension to avoid late filing penalties.
Here’s the step-by-step procedure for how to request a tax extension:
- Determine if you are eligible: Most taxpayers are eligible for an automatic six-month extension of time to file their tax return. However, you must still pay any taxes owed by the original filing deadline to avoid penalties and interest.
- Submit Form 4868: To request a tax extension, you must submit Form 4868, the Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, to the IRS. You can file the form electronically or by mail.
- Provide necessary information: When submitting Form 4868, you must provide your name, address, Social Security number or taxpayer identification number, and an estimate of the taxes you owe.
- File by the extension deadline: If approved, you will have an additional six months to file your tax return. The extension deadline is typically October 15 for individuals but may differ for businesses.
While an extension of time to file your tax return can help you avoid late filing penalties, it does not extend the deadline for paying any taxes owed. If you are unable to pay your taxes by the original filing deadline, you may be able to set up a payment plan with the IRS or request a waiver of penalties based on reasonable cause. Additionally, seeking the advice of a tax professional can help ensure you understand all available options and avoid potential penalties and interest.
What Are the Benefits of Working with a Raleigh CPA?
Working with a certified public accountant in Raleigh can provide several benefits for individuals and businesses alike.
Expertise in Tax Laws
CPAs are trained to understand federal and state tax laws, regulations, and compliance requirements. They can help you navigate complex tax rules and maximize your deductions and credits, potentially reducing your tax liability.
Accurate Financial Reporting
CPAs have the knowledge and experience to accurately prepare and review financial statements, helping ensure compliance with accounting standards and regulations.
Strategic Financial Planning
A CPA can provide valuable insights and advice on financial planning, including investment strategies, retirement planning, and estate planning.
Timely and Efficient Filing
CPAs can help ensure that your tax returns and financial reports are filed accurately and on time, potentially avoiding costly penalties and interest charges.
For businesses, a CPA can provide strategic advice on financial management, budgeting, cash flow management, and risk assessment.
Representation in Tax Matters
If you face a tax audit or other tax-related issue, a CPA can represent you before the IRS or state tax authorities, potentially saving you time, money, and stress.
Contact our Small Business Accountants in Raleigh Today!
Ready to take your small business to the next level? Contact our small business accountants in Raleigh today to get started!
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