How to File Small-Business Taxes (2024)

There were roughly 31.7 million small businesses in the United States in 2020, according to the Small Business Administration. Running a small business often requires you to perform a wide variety of tasks you might not have to perform at a large business, one of which is filing small-business taxes.

This process can be confusing. Depending on the type of small business you have, you’ll need to file one of several different types of tax returns. Sole proprietors usually file Schedule C on a typical Form 1040 personal tax return. However, partnerships have to use Form 1065 and C Corporations use Form 1120.

Each return is different, and many of these returns require business owners to file additional forms, such as Schedule K-1, with their personal tax returns. So how do you keep everything straight? There are a few ways to prepare for tax season as a small business.

Enlist Professional Tax Preparer

If you’re completely clueless when it comes to small-business accounting, you’ll probably be best off hiring a tax preparer. There is a wide range of tax preparers from enrolled agents, to tax preparers, to certified public accountants (CPAs).

Prices vary depending on the level of expertise and services offered. As with most things, you get what you pay for. For instance, asking for free advice on the Internet rather than hiring a professional could be a big mistake.

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Make Sure You Get the Right Advice

“When looking for advice online, such as in a Facebook Group, make sure to verify the credentials of the person giving the advice,” says Eric Nisall, founder of AccountLancer.

“Not everyone who says they are an ‘expert’ is one, and taxes aren’t an area in which you want to take unqualified advice.”

If you don’t understand something, consult an expert. Consulting an unqualified individual can lead to costly mistakes later on.

“If you are going to pay a professional tax preparer, make sure you can ‘interview’ them before committing to a relationship. You want to make sure they are a good fit for you personality-wise, as well as ‘getting’ your business,” says Nisall.

Know Your CPA's Process

If you use a CPA firm to file your taxes, chances are he or she will help you get prepared for tax season before it actually hits. Many CPA firms send out tax checklists to make sure you send everything they need to prepare your tax return. You can use these checklists to gather the necessary information and get ready for the firm to prepare your taxes.

Many CPA firms also offer bookkeeping services. If you hate keeping up with your books and outsource this task to a CPA firm, the accountants will likely have most of the necessary information to file your return already.

If you’re going to have a tax preparer fill out your tax return for you, do yourself a favor and don’t wait until the last minute. Tax preparers get busier as tax season moves on. If you get in early with organized documents, you’ll likely have a much easier process from start to finish.

How to File Your Own Small-Business Taxes

If you feel comfortable with bookkeeping and taxes, you could fill out your tax returns yourself. Technically, you can even fill out business tax returns by hand, although most people would be better off using tax software.

Doing your taxes yourself means you’ll need to seek out the resources to accurately prepare to fill out your tax return. Here are some great resources DIYers can check out.

Check With the Internal Revenue Service (IRS)

Since you’ll inevitably file your tax return with the IRS, it makes sense to go to its resource center if you have questions when it comes to your small-business tax return.

Different kinds of businesses require different kinds of tax filing and are subject to different rules. The rules are not the same for an independent contractor as they are for an S corporation or a C corporation — or any other business entity.

The Small Business and Self-Employed Tax Center offers information for different types of businesses. It can tell you about preparing your taxes, how to file and pay your small-business taxes, the stages of owning a business, general topics, and online learning.

While this resource can definitely help with your tax return, it can also provide assistance with other tax aspects of your business, like employer identification numbers (EINs).

“The IRS has many great resources such as FAQ sections, which explain tax issues in plain English,” Nisall says.

“And they aren’t hidden behind a paywall or registration form either — they are free for anyone to access.”

In addition to the Small Business and Self-Employed Tax Center, the instructions to the particular forms you’ll file for your business tax return have a lot of helpful information.

However, the instructions are in the order of the tax forms. As such, you may have to hunt to find what you need. Additionally, the IRS instructions can seem complex to a novice.

Take a second and read each line slowly to try to figure out exactly what they’re asking for. Usually, slowing down or taking a break and reading it again later will help you figure it out.

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Tax Software Can Make Your Life Easier

If you’ve decided to take a DIY approach to your small-business taxes, do yourself a favor and purchase tax software. It will ask you questions in a much easier to understand way than the IRS tax forms do.

Additionally, tax software companies have vast resources to help you understand the small-business tax process. They typically offer an FAQ database that answers the most common questions, as well as provide support from humans when you can’t figure something out yourself.

Costs for small-business tax software vary depending on the software you choose, when you buy it, and what type of business you run.

Know the Rules for Your State(s) and Your Industry

The starting point of most tax filing is the federal income tax return. However, many deductions and credits are industry- or state-specific. Know the specific forms and rules applicable to the states where you have to file small-business taxes.

For example, if your company has operations in the state of California or is incorporated in Delaware, it may need to file annual tax reports independent of the annual income tax returns required by the IRS and other states.

You should also know the requirements and deductions specific to your industry. For example, if your company is developing a new technology or process, it may qualify for a research and development credit, for example.

Pay Attention to Timing When Filing Small-Business Taxes

Business owners like their customers to pay them in a timely fashion. Well, you and your company are the IRS’s customers. What do you think the IRS expects from you when it comes to tax payments? Timeliness.

Entrepreneurs often forget to pay estimated taxes during the year, especially during their first year in business. Most taxpayers focus on the year-end tax returns. In doing so, they forget that both the IRS and individual states require quarterly estimated tax payments where taxable income exists. Know what is due, to whom, and when.

Don’t Forget Sales Tax!

Sales tax can be a huge penalty hole for entrepreneurs. Don’t start creating a presence in a state and selling your products without ensuring that you’re in compliance with that state’s sales tax requirements. Find out what they are early on to avoid problems later.

Payroll Taxes

While payroll taxes are another biggie, they’re also easily outsourced. Many entrepreneurs outsource them to professional payroll providers whose services include the proper withholding and remittance of payroll taxes. This will not only make life simpler for you, but it will also ensure your taxes are done right the first time.

Establish a Sound Record-Keeping Process

When it comes to documentation and retention of receipts and invoices, there’s no such thing as overdoing it. Every deduction or credit that you take can be challenged by the IRS or a state during an audit. If you have the supporting documentation and can prove that the deductions were business-related, there’s a good chance that you’ll prevail.

As scary as taxes may sound, many others have been in your shoes before you. Learn from their mistakes and successes. Arm yourself with information — and with the support of tax professionals whenever appropriate.

Monitor Your Business’s Health, Organize Your Finances,
And File Your Taxes All From The Same Place Join Today And Get The First 15 Days Free

The Bottom Line on How to File Small-Business Taxes

In the end, you’ll have to decide whether it’s worth your time to try to fill out your small-business tax return yourself, pay for tax software, or hire a tax preparer to do it for you. While buying software or hiring a preparer may cost you more money, it can save you a ton of time, which you know is valuable as a small-business owner.

Purchasing software or paying a preparer will give you some peace of mind that your return is correctly completed, and that your tax forms are on their way to the IRS.

Additional background information for this article was provided by Katie L. Thomas, CPA, of Diamond J Accounting.