Dealing with taxes might feel like a lot, but staying on top of things doesn’t have to be stressful. Whether you’re looking to file on time or need an extension, it’s all about knowing the basics and keeping track of your filing requirements & deadlines.
In this blog, we’ll break down 7 key things every business owner should keep in mind to ensure a smooth tax filing process with the IRS. Let’s dive in!
Business Registration & Classification
Before diving into tax filing, it’s essential to understand how your business is registered and classified for federal tax purposes. The structure you choose for your business can greatly impact your taxes, legal responsibilities, and the way the IRS treats your business. Here’s a breakdown of the most common business structures:
Sole Proprietorship
A sole proprietorship is the simplest business structure. It’s owned and operated by one individual, with no distinction between the business and the owner. While it’s easy to set up, the major drawback is that the owner is personally liable for any debts or legal issues the business encounters.
Partnership
A partnership is a business structure where two or more people share ownership. Like a sole proprietorship, the business itself is not taxed separately. Instead, each partner reports their share of the profits or losses on their personal tax returns. Partnerships offer flexibility but also come with personal liability for business debts.
Corporations
A corporation is a legal entity separate from its owners. This structure offers limited liability, meaning the owners (shareholders) are not personally responsible for the company’s debts or liabilities. Corporations are subject to corporate income taxes and must adhere to strict regulatory requirements.
- C-Corporations: C-corporations are taxed separately from their owners, meaning the business itself pays taxes on its profits. If those profits are distributed to shareholders as dividends, the shareholders also pay taxes on them (this is called “double taxation”).
- S-Corporations: S-corporations are similar to C-corporations, but they avoid the double taxation issue. Instead of paying corporate taxes, the income passes through to the shareholders, who report it on their personal tax returns.
Limited Liability Company
An LLC (Limited Liability Company) is a business structure that provides liability protection for its owners, shielding them from personal responsibility for the company’s debts. For tax purposes, LLCs are pass-through entities, meaning the company itself doesn’t pay taxes on its profits. Instead, profits pass through to the owners (members), who report them on their personal tax returns. This structure offers both liability protection and flexible tax treatment, making it a popular choice for many businesses.
- Single-Member LLC: The name suggests this type of business structure has only one owner. For IRS tax purposes, a single-member LLC can be classified into two categories.
- Sole proprietors (Disregarded entities)
- Corporations
- Multi-Member LLC: This is for businesses with more than one owner. While it offers similar protections as a single-member LLC, the owners typically share responsibility for filing taxes and managing the business. For tax purposes, it can be classified in one of the following ways:
- Partnerships
- S-corporations
- C-corporations
Annual Business Tax Filing Requirements
Understanding your business’ annual tax filing requirements is essential for compliance with IRS regulations. Several factors, such as your business structure, profits, liabilities, and the number of employees, will determine the specific forms you need to file and when. Each business structure has its own set of filing guidelines, and it’s essential to choose the correct forms to avoid penalties or missed deadlines. Below is a breakdown of the forms and filing requirements based on business structure, profit, liability, and other considerations:
Sole Proprietorship
Sole proprietors file Form 1040 with Schedule C to report business income and expenses. The owner’s personal tax return includes the net profit or loss from the business.
Partnership
Partnerships file Form 1065 to report income, deductions, and other business-related information. Each partner also receives a Schedule K-1 to report their share of the partnership’s income on their personal tax return.
Corporations
- C-Corporations
C-Corporations file Form 1120 to report income, deductions and pay corporate income taxes. Shareholders are taxed separately on dividends, leading to double taxation. - S-Corporations
S-Corporations file Form 1120-S, which allows income to pass through to shareholders. Shareholders then report their share of the income on their personal tax returns.
Limited Liability Companies
- Single-Member LLC
- Sole Proprietorship (Disregarded Entity): A single-member LLC is typically treated as a sole proprietorship (disregarded entity) for tax purposes. The income and expenses are reported directly on the owner’s personal tax return using Form 1040.
- Corporations: If elected, a single-member LLC can choose to be taxed as a corporation by filing Form 8832 and then filing Form 1120 for C-Corporations or Form 1120-S for S-Corporations.
- Multi-Member LLC
- Partnerships: By default, multi-member LLCs are taxed as partnerships. They file Form 1065 to report the business’s income and expenses. Each member receives a Schedule K-1 to report their share of income on their personal return.
- S-Corporations: Multi-member LLCs can elect S-Corporation status by filing Form 1120-S annually to report their income and losses to the IRS.
- C-Corporations: Multi-member LLCs may also elect to be treated as a C-Corporation by filing Form 8832 and must file Form 1120 to report income and pay corporate taxes.
Business Tax Deadlines – Key Dates to Remember
Staying on top of tax deadlines is crucial for ensuring that your business remains in good standing with the IRS and avoids penalties or interest for late filing. The deadlines vary based on your business structure, so it’s important to know when your forms are due.
| Business Structure | Key Deadlines |
| Partnership – Form 1065 | March 15 |
| S-Corporations – Form 1120-S | |
| Single or Multi-member LLC (Treated as S corporations) | |
| Multi-member LLC (Treated as Partnership) | |
| C-Corporations – Form 1120 | April 15 |
| Sole Proprietors – Form 1040 | |
| Single or Multi-Member LLCs (Treated as C-Corporation) | |
| Single-Member LLCs (Treated as Sole Proprietorship) |
Option to Extend Business Tax Deadlines
If you’re unable to file your business taxes by the original deadline and need more time to file your tax returns, you can request an extension to extend the filing deadline. By filing an IRS tax extension, businesses are granted an automatic extension of up to 6 months to file their business tax returns. This extension is automatic, so you are not required to provide any kind of explanation or reason to the IRS.
- If you’re a Corporation or partnership needing more time to file your tax return, efile Form 7004 to get an automatic extension of 6 months to file your original tax return.
- If you’re a sole proprietor and need more time to file your tax return, Form 1040, file Form 4868 online to get an automatic extension of 6 months to file the tax return.
There are a few things to check before filing an extension for your business to avoid common mistakes and errors:
- Request Correct Extension Form: Select the correct extension form to extend the filing deadline. Selecting the wrong form can result in the risk of rejection.
- Enter the Correct Form Code: Every extension has a unique code, so it’s essential to enter the right code to avoid any processing delays.
- Verify Business Information: Ensure your basic business information, such as name, EIN, and other details, exactly matches the IRS records. Incorrect or mismatched information could delay the processing or cause rejections.
It’s important to remember that while you can extend your tax return filing deadline, any taxes owed must still be paid by the original due date. Filing an extension does not grant extra time to pay.
Understanding the Tax Payments
Generally, businesses need to report and pay various taxes based on their structure, income, and operations. These tax obligations ensure compliance with IRS regulations and help businesses avoid penalties.
- Income Tax
Businesses must file income tax returns to report earnings and pay taxes on their profits. - Self-Employment Tax
If you’re a self-employed individual or sole proprietor, you must report and pay self-employment tax. This tax covers Social Security and Medicare contributions and is reported using Schedule SE along with your personal tax return. - Sales Tax
Businesses that sell taxable goods or services must collect sales tax from customers and remit it to the appropriate state or local tax agency. The requirements and filing frequency vary based on the location and type of business. - Excise Tax
Excise tax applies to specific goods and services at the time of sale. Unlike international taxes, excise taxes are imposed within a specific government jurisdiction. For example, in the U.S., common items subject to excise tax include motor fuel, tobacco, and airline tickets. These taxes can be levied at both federal and state levels.
To remain compliant, you must accurately report these tax payments on your income tax return. Even if you file for an extension, you must pay any owed taxes by the original deadline to avoid penalties and interest charges.
Consequences of Late Filing or Payments
If you fail to file your original tax return on or before the deadline (including extensions), you’ll face potential penalties from the IRS. The penalties are based on your tax form and whether you miss the filing or payment deadline.
Late Filing Penalties:
For example, if you missed the original filing deadline for Form 1120-S, including the extension deadline, the IRS imposes a 5% penalty per month for up to 5 months on the amount due.
Late Payment Penalties
If you don’t pay any tax dues by the deadline, the IRS will impose a penalty on the unpaid balance. The penalty is usually a percentage of the tax due, and the longer the delay, the higher the penalty.
Conclusion
In conclusion, this article covers all the basics and key things every business should know when preparing for tax filing. From understanding your business structure to keeping track of deadlines, staying informed is crucial. Filing your correct tax return on time, whether by the original deadline or the extension, helps you stay compliant with the IRS and avoid costly penalties.