How to File Business Tax Returns for Small Businesses?

How to File Business Tax Returns for Small Businesses?

If you are running a business, understanding the complications in filing returns is one of the important aspects. There are different ways to file your business tax as it totally depends on the type of business you operate. If you are looking forward to knowing how to file business taxes online, we will help you out.

Important Details: The deadline for federal tax filing has now been extended to the 17th of May 2021. Quarterly estimated tax can be paid by the 15th of April 2021.

The guide demonstrates the type of businesses, who should pay the tax, and the whole procedure of filing business tax returns using TurboTax. Read ahead to learn more.

What Do You Understand about Business Tax Returns?

A business tax return is an income tax return which is a statement of your income and expenses of the business. In addition, the tax that needs to be paid on a profit which is made by you is also declared in this tax return. This return consists of liabilities and asset details that are held by a business. Items like debtors, business creditors, fixed assets, loans (taken or given) are all declared here in your tax return.

Who Can File a Business Tax Return?

The type of structure of your business determines who and how can one file business tax returns. The rules can be different for the sole proprietors and the Limited Liability Partnership.

Here are the important details about filing a tax return.

  • Those who are sole proprietors need to state the business income, personal income (salary), interest income, and income from the house property on the same tax return.
  • Before deduction, if the total income is above the taxable limit then you have to file the income tax return regardless of profit and loss in business.
  • The limit of basic tax is Rs. 2.5 lakh. In case your income is above the Rs. 2.5 lakh (before deduction) then it is necessary for you to file a business tax return.
  • Limited Liability Partnership (LLP), firms, and companies are taxed at 30% of the rate.
  • For firms, LLP, and companies, a business tax return will be filed regardless of profit and loss in business. Also, if no operations are undertaken then a return needs to be filed.

Other Taxes You May Need to Pay

Income Tax Audit: If a taxpayer crosses the revenue of Rs. 1 Crore or above in businesses and around 50 lakh speaking of professionals then they need to get their tax audit done. In addition, every taxpayer needs to appoint a Chartered Accountant in order to audit the accounts.

In case you are facing a loss in your business or wish to carry forward your business loss, you still have to proceed with the tax audit. A tax audit is also important when you declare a profit of less than 8% or 6% for the Digital transactions of your revenues speaking of business and 50% of receipts speaking of professionals.

Presumptive Taxations: HUF, Firms and Individuals who are running businesses or offering services can provide income to tax on a presumptive basis. The revenue up to which taxation is allowed is 2 Crore for businesses and 50 lakh for professionals. Under the presumptive tax for business, 8% of the revenue should be offered an income. Also, 50% of professional receipts are declared on the business tax return.

These are solid examples for those who need to file a business tax return. Whether you are a sole proprietor or run a firm or company, a business tax return has to be filed especially if you cross the basic taxable limit before deductions.

What are the Types of Business Taxes?

The type of business that you operate determines what type of taxes you should pay. Generally, there are five types of business taxes. You can go through them one by one and check how to file a business tax return.

Income Tax

All businesses excluding partnerships should file the annual income tax return. Partnerships can file the information return. The form you use for filing tax depends on how you organize your business. Hence, you should refer to the business structures so that you can find out which tax returns you should file.

For the federal income tax, you need to pay the tax as you receive or earn your income through the year. Usually, employees have income tax withheld from her/his pay. In case you don’t pay the tax through withholding then you may need to pay the estimated tax. And, if you don’t require to make payments for estimated tax then you are required to pay the tax due when filing your tax return.

Estimated Tax

You are required to pay taxes on your income by preparing the regular payments of your estimated tax through the year. It also includes self-employment tax.

Self-Employment Tax

Self-employment tax, also known as SE tax is a Medicare tax. This works like social security for those who work for themselves. The SE tax payments contribute to the coverage under a social security system. This social security system offers retirement benefits, survivor benefits, disability benefits, and medicare benefits (hospital insurance).

Usually, one should pay the self-employed tax and file Form 1040 or 1040 SR (Schedule SE) if any of the following applies:

  • When the net earnings from your self-employment are $400 or above.
  • If you are working for a qualified church-controlled organization (other than as a member of the religious order) that has chosen the exemption from Medicare and social security taxes then you need to pay for SE tax especially if you are receiving $108.28 or above in wages form your organization or church.

Important Note: There are exceptional rules for fishing crew members, aliens, local or state government employees, notary public, international organization employees or foreign governments, etc.

Employment Tax

If you are having employees then you as an employer have responsibilities for certain employment tax that you need to pay or the form that you must file.

Below are the following details that include in employment taxes:

  • Federal income tax withholding
  • Medicare taxes and social security
  • Federal unemployment tax

Excise Tax

You can pay or file the forms to file the excise taxes only if you perform any of the following activities:

  • Operate different kinds of businesses.
  • Sell or manufacture certain products.
  • Receive payment for a specific service.
  • Use different kinds of facilities, products, or equipment.

Form 720

The excise taxes that are reported on Form 720 includes several broad categories for the tax. It includes the following:

  • Fuel taxes.
  • Air transportation and communication taxes.
  • Environment taxes.
  • Manufacturers tax on sales or use different types of articles.
  • Tax on your first retail sale of trailers, heavy trucks, and tractors.

730 Form

If you have a business where you conduct a wagering lottery or pool or accept wagers then you are liable for the excise tax on wagering. You can use Form 730 to check the tax on wagers that you receive.

2290 Form

For certain truck tractors, buses, and trucks that are used on public highways, there is an excise tax This tax applies to those vehicles that have a taxable gross weight of at least 55000 pounds.

Form 11-C

Form 11-C can be used for Occupational Tax and Registration Return for Wagering so that you can register for the wagering activity and pay for the federal occupational tax.

The excise tax also has other tax programs. One of the important components of the excise tax program is motor fuel.

How to File Small Business Taxes using TurboTax?

TurboTax is one of the helpful software to file taxes. It offers two products for business owners. One is TurboTax Home & Business that is designed for the 1099 contractors and sole proprietors while the other one, TurboTax Business is helpful to prepare taxes for partnerships, corporations, and Limited Liability Company (LLC).

If you are using TurboTax software for filing your business tax, here the following steps you can follow. Learn how to file for business taxes using TurboTax.

1: Gather the Records

The very first step is to collect the information required for filing a business tax return. Make sure you have all the records that report the business expenses and earnings. However, it depends on the business entity but it may require the following items:

  • Personal Information such as DOB, address, SSN, etc.
  • Employer Identification Number.
  • Tax return of last year.

You may collect other information related to your expenses and income. For collecting information for income, it may include the following:

  • Invoices that you share with your clients.
  • Records of goods you have sold to the customers.
  • Sales records that may note money received by your business.

For the expenses, you can collect receipts for the costs incurred during operation. It may include the following:

  • Office supplies
  • Rent receipts for small businesses
  • Client lunches
  • Employee salaries
  • Mileage records

If you use a spreadsheet and computer program in order to manage and keep track of transactions throughout the year then calculating your deductions and incomes will be easier than remembering each expenditure and sale of the last year. TurboTax with the programs like Quicken and QuickBooks works efficiently as you can easily import the details directly into the tax return.

2: Choose the Correct Form

After you gather information on income and expenses, the next step is to select the right IRS tax form. You should always report the business earnings to the Internal Revenue Service and pay tax. However, selecting the right form for reporting your earnings is dependent on how you are operating your business.

  • Small business owners usually use a sole proprietorship. This allows reporting all the business income and expenditures on a Schedule C attachment to the personal income tax return.
  • In case you are running your business as an LLC and you are the only owner of the business then the IRS allows using the Schedule C attachments. However, if you prefer to use a corporation then you need to file a separate corporate tax return on the 1120 form. If you are under S-Corp then select the form 1120s.

Whether you use TurboTax Business (for LLCs, partnerships, and corporations) or TurboTax Home & Business that is designed (for the 1099 contractors and sole proprietors), all you are required to enter details related to your income and expenses. Then the program will fill in the details in the right form.

3: Fill the Form

As stated earlier, you need to fill out Form 1120 or Schedule C. In case you are planning to report your income and expenses on Schedule C then you can visit the IRS website in order to search for a copy of the form. Alternatively, you can use TurboTax software in order to generate the form after adding the details of the financial status.

Filing Business Tax on Schedule C

  • Schedule C is an easy way to file business taxes as it consists of only two pages and lists all the expenses that you claim.
  • When the process is done, you just need to subtract the expenses from the business income to reach the net profit or loss.
  • Thereafter, you can transfer this number to the form of personal income tax and include it with other personal tax items.

Filing Business Tax on Form 1120

  • If you prefer filling out form 1120 then you need to calculate the taxable business income following the same way. However, it required additional details that may not apply to the small business.
  • The disadvantage of using form 1120 is that it is quite different from the personal income tax return.

So depending on your requirement and preferences, you can use either Schedule C or form 1120. However, filling out Schedule C is more beneficial as it is easy to fill.

4: Check the Deadlines

When filing a business tax return, it is important to keep an eye on the deadlines. For instance, if you are using Schedule C, it automatically becomes a part of Form 1040, and thus, no deadlines apply separately. It generally follows the same deadline of 15th April.

If you are under the C-Corp then you are supposed to file Form 1120. It should be filed by the 15th of April. But, if you are taxed under the S-Corp then you should file the 1120s form. This should be filed by the third month of the ending of the tax year which should be 15th March for taxpayers. Remember that you cannot send your form to the IRS along with your personal income tax.

This is how you can file business taxes with the TurboTax software. All you have to gather the information so that you can record the income and expenses. Thereafter, you can select the form based on the type of business you operate, fill the form with the correct information and make sure you follow the deadlines.

How to File a Business Tax Extension?

There can be instances when you miss the deadlines for filing the small business tax return. What would you do in such situations? The answer is “apply for the extension”. Yes, if you even ever miss out on the deadlines, you can still apply for an extension to file a tax return. This should be noted that you pay the estimated tax by the original deadline.

Final Verdict

Whether you are a sole proprietor or run a firm or company, a business tax return needs to be filed especially if you cross the basic taxable limit (2.5 lakh) before deductions. Here, we have taught how to file business taxes online. Apart from this, we have talked about different types of tax forms and business taxes with other useful information.

Do you want to file taxes for previous years? If so, read this detailed guide on how to file back taxes.

Frequently Asked Questions

Q. How to File My Business Taxes?

Ans. To file your business tax, all you need to collect the information to record income and expenses. Then, you can select the right form based on the type of business you operate, fill the form with the correct details. Make sure you follow the deadlines.

Q. How Much Does It Cost to File Small Business Taxes?

Ans. In case you are hiring a professional to file your business tax then you should be aware of the cost you might need to pay. Check out the following details.
$174 – Form 1040 Schedule C (business)
$817 – Form 1120 (corporation)
$634 – Form 1065 (partnership)
$457 – Form 1041 (fiduciary)
$688 – Form 990 (tax exempt)
$115 – Schedule D (gains and losses)
$778 – Form 1120S (S corporation)
$68 – Form 940 (Federal unemployment)

Q. How to File Small Business Taxes in Texas?

Ans. According to the majority of partnerships in Texas are subject to the franchise tax. It also includes LPs and LLPs.

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