Taxes! They’re a necessary part of running a business, but navigating the filing process can feel overwhelming. For small business owners, the idea of filing business taxes can bring a lot of stress.

From figuring out which IRS forms to use to make sure everything is submitted on time, it’s easy to feel lost. But it doesn’t have to be so complicated.

With the right approach and a little bit of organization, you can get through tax season without the headache.

In this simple 3-step guide, we’ll walk you through the process of filing your business tax return so you know exactly what to do when tax time rolls around.

Remember, the key to smooth tax filing is staying organized throughout the year.

By keeping track of your income and expenses and knowing what you need to file, you’ll reduce the risk of errors and avoid potential penalties.

Plus, having everything in order allows you to take full advantage of any deductions and credits, maximizing your tax savings.

If you’re still feeling overwhelmed or unsure about your next steps, consider doola for your tax filing needs.

We’ll help you stay on top of your taxes, ensuring you’re compliant with all the latest regulations and saving you time to focus on what really matters — your business.

Step 1: Gather Your Records and Understand Your Tax Obligations

When it comes to filing your business taxes, the first and most important step is gathering your records. You can’t file your taxes accurately without having the proper paperwork in place.

Good record-keeping ensures you’re not scrambling at the last minute and helps avoid costly mistakes that could lead to penalties. But first, let’s understand why this step is essential and what records you’ll need to gather:

• Legal compliance: The IRS and state tax agencies require you to keep detailed financial records to back up your tax filings.

• Avoid penalties: Without accurate records, you might make errors when filing, which could lead to fines or additional taxes owed.

• Track deductions: Proper records allow you to track deductible business expenses, reducing your overall tax liability.

• Audit protection: Well-kept records provide proof of income and expenses, making the audit process more straightforward.

What Records Do You Need?

Before you sit down to file your taxes, you need to have all the necessary documents at your fingertips. This ensures a smooth and error-free filing process.

Here’s a list of essential records every business owner should gather:

• Income Statements: These include invoices, sales receipts, and any other records that document money coming into your business.

• Expense Receipts: Keep track of everything your business spends money on. Whether it’s rent, office supplies, or employee salaries, you need receipts or electronic records for every expense.

• Bank Statements: These provide a detailed record of all transactions, thus helping to verify both income and expenses.

• Tax ID Numbers: For most businesses, this is your Employer Identification Number (EIN). If you’re a sole proprietor, your Social Security Number (SSN) might serve this purpose. These numbers are required for filing both federal and state taxes.

• Previous Tax Returns: Having last year’s tax return handy can help you compare figures, check for consistency, and ensure you don’t miss anything.

Once you’ve collected these documents, you’re well on your way to filing correctly. But it’s not just about the records — you also need to understand what taxes you’re responsible for.

Understanding Your Tax Obligations

Business taxes aren’t one-size-fits-all. The taxes you owe will depend on your business structure, income, and location.

It’s essential to know the difference between the types of taxes you’ll need to file and when they’re due:

Federal vs. State Taxes

You’ll likely need to file both federal and state taxes, but the rules differ.

Federal taxes are paid to the IRS, while state taxes go to your state’s tax authority. Some states also have local taxes, so check with your state’s website for more info.

At the federal level, you’ll typically be responsible for income tax and, depending on your business, self-employment tax.

Types of Taxes You May Owe

• Income Tax: This is the most common tax for businesses. Whether you’re a sole proprietor, partnership, LLC, or corporation, you’ll need to pay taxes on your net income (revenue minus expenses).

• Self-Employment Tax: If you’re self-employed, you’ll also need to pay self-employment tax. This covers Social Security and Medicare contributions that an employer would typically withhold.

• Sales Tax: If your business sells products or taxable services, you might need to collect and pay sales tax to your state. Each state has different rules, so make sure you check what applies to you.

Understanding the Differences in Business Structures

• Sole Proprietors: You’ll need to report your business income on your personal tax return using a Schedule C form. Don’t forget to pay self-employment tax as well.

• Partnerships: Each partner reports their share of income and expenses on their individual tax returns. Partnerships themselves don’t pay income tax but must file an informational return.

• LLCs: Depending on how your LLC is structured, you may file as a sole proprietor, partnership, or corporation. The IRS website has helpful resources on how to choose the correct classification.

• Corporations: Corporations pay taxes separately from their owners, and you’ll need to file Form 1120 for your business tax return. Corporations are also subject to additional taxes, like double taxation on dividends.

Visit the IRS website for more details on your specific tax obligations. Remember, this step is all about preparation. Gathering your business tax records, such as income statements, expense receipts, and your EIN, is the foundation for a smooth filing process.

The more organized you are, the easier it is to file accurately and on time. Make sure you understand your federal, state, and local tax obligations, and keep up with changes that might affect your business.

If you ever feel lost, doola’s comprehensive tax package is here to help you navigate your tax journey.

Step 2: Choose the Right Tax Form and Maximize Deductions

Filing your business taxes can feel overwhelming, but it becomes much easier when you know which tax forms to use and how to maximize deductions.

In Step 2 of this guide, we’ll walk you through how to select the correct tax form based on your business structure. We’ll also discuss how to save money by taking advantage of business deductions.

Selecting the Right Tax Form

The type of tax form you’ll file depends on your business structure. Here’s a breakdown of the different IRS forms for sole proprietorships, LLCs, partnerships, and corporations.

Sole Proprietorships & Single-Member LLCs

If you run a sole proprietorship or a single-member LLC, you’ll need to file your business taxes as part of your personal tax return using Schedule C, which reports income or loss from your business.

This form is attached to Form 1040, which is the same form used for individual income tax returns.

Multi-Member LLCs

A multi-member LLC has several options depending on how it elects to be taxed.

• Partnership: By default, a multi-member LLC is treated as a partnership for tax purposes. You’ll file Form 1065, which is an informational return that reports the LLC’s income, deductions, and credits. The profits and losses are passed through to the members, who report them on their personal returns.

• S Corporation: If you’ve elected to have your LLC taxed as an S corporation, you’ll file Form 1120S. The profits or losses are passed through to the owners, similar to a partnership, and reported on their personal tax returns.

• C Corporation: If your LLC is taxed as a C corporation, you’ll file Form 1120. A C corporation is a separate tax entity, which means the corporation itself pays taxes on profits. Then, if profits are distributed to the owners as dividends, they’ll pay taxes on that income as well, leading to what’s commonly known as “double taxation.”

Partnerships

A partnership must file Form 1065. Like a multi-member LLC filing as a partnership, the partnership doesn’t pay taxes itself. Instead, it passes profits and losses to the partners, who report them on their personal tax returns.

Each partner receives a Schedule K-1, which details their share of the partnership’s income, deductions, and credits.

Corporations (C & S)

If your business is incorporated, you’ll file taxes based on whether you’re a C corporation or an S corporation:

• C Corporations file Form 1120 and are taxed separately from their owners.

• S Corporations file Form 1120S, but income is passed through to the shareholders, who report it on their individual returns.

Choosing the right tax form is crucial, as it impacts the amount of tax you pay and the complexity of your filing process.

If you’re unsure, it’s always a good idea to consult a tax professional.

Maximizing Deductions

Business deductions play a crucial role in reducing your taxable income, which can significantly lower the amount you owe. The IRS allows businesses to deduct ordinary and necessary expenses related to running the business.

Here’s a breakdown of common business deductions and how they can help you save money.

• Business Expenses

• Home Office Deduction

• Marketing Expenses

• Travel and Meals

• Vehicle Expenses

• Professional Services

• Employee Salaries and Benefits

• Software and Subscriptions

Industry-Specific Deductions

Some deductions are specific to certain industries, and overlooking them could mean missing out on valuable tax savings. For example:

• Restaurants can deduct a portion of their food costs and specific equipment.

• Construction businesses can often deduct the cost of heavy machinery and specialized tools.

• Freelancers and independent contractors can deduct a wide range of expenses, including internet service, design software, and business-related courses or certifications.

To find industry-specific deductions, it’s a good idea to consult IRS resources or work with a tax professional who understands your field.

You can also refer to IRS publications like Publication 535, which covers business expenses, or use online tax deduction checklists tailored to your industry.

Step 3: File Your Taxes Electronically and Pay Your Tax Bill

After you’ve gathered your documents and calculated how much you owe, it’s time to file your business taxes. This step can seem overwhelming, but filing electronically (also known as e-filing) makes it a lot easier.

Let’s break down why e-filing is the way to go and how to calculate your tax bill, pay it, and meet the deadlines.

Filing Electronically

Filing your business taxes electronically has some significant advantages:

• Speed: E-filing is fast. Once you hit “submit,” your return is immediately sent to the IRS, meaning you can get confirmation much faster than if you were mailing it.

• Convenience: You can e-file from anywhere, whether you’re in the office or working from home. All you need is access to an e-filing platform. You can even save your return and come back to it if you need more time.

• Accuracy: Many e-filing platforms include built-in error checks, so you’re less likely to make mistakes compared to filling out paper forms. That reduces the chance of your return being rejected or delayed.

You can use several popular platforms like TurboTax, H&R Block, or TaxAct to e-file your business taxes. The IRS also offers IRS Free File, a free option for eligible businesses. 

Such platforms guide you through the process step-by-step, making it easy to complete your return.

Calculating Your Tax Bill

Once you’ve prepared your return, you’ll need to calculate how much you owe. Here’s a quick overview of how to do it:

• Determine taxable income: This is your business’s total income minus any allowable deductions and credits.

• Apply tax rates: The tax rates you’ll use depend on your business structure. For example, corporations have a flat federal tax rate of 21%, while sole proprietors pay based on individual income tax rates.

You might also owe additional taxes, such as self-employment taxes, depending on your business setup.

Payment Options

Once you’ve filed, it’s time to pay your tax bill. The IRS offers several ways to do this:

• Electronic payment: The easiest option is to pay directly from your bank account using IRS Direct Pay or a debit/credit card. These methods are quick and secure.

• Check or money order: You can still mail a check or money order to the IRS, but it’s slower and not as efficient.

For specific business structures, like sole proprietorships or partnerships, you may also need to make estimated tax payments throughout the year. These payments are required if you expect to owe $1,000 or more in taxes.

The IRS also offers an Estimated Tax Worksheet to help calculate how much you need to pay each quarter.

Tax Deadlines

Meeting the tax deadline is crucial to avoid penalties. Here are the key federal deadlines for business taxes:

• March 15th: If you need an extension for S-corporations or partnerships, you must file by this date.

• April 15th: For sole proprietors, LLCs, or corporations, this is typically the deadline to file and pay taxes for the previous year.

However, state tax deadlines may vary, so it’s essential to check with your state’s tax department to confirm their specific deadlines.

Manage Tax Compliance With doola

To overcome the complexity of tax filings, it is always better to invest in an expert opinion.

doola offers a perfect combination of both, along with multiple other perks, to transform your tax filing experience and help you embark on a worry-free business journey.

doola’s Total Compliance Package is a bundled offering with comprehensive features for businesses of all sizes and scales. You can leave your worries to our tax experts and also use our extensive bookkeeping solution for payroll management. 

Right from business formation to running your business from any part of the world and taxation or compliance — doola walks you through every step of the journey, ensuring you enjoy a stress-free business.

Want to learn more about how we can help you? Schedule a free tax consultation with us today!