New small business owners may find tax season very stressful. From which forms to fill out to the filing deadlines, there's a lot that goes into filing taxes as a small business. If you're in that situation, here are some tips to make paying business taxes easier and less painful.
Completing and Filing Your Business Tax Return
Most business owners pay taxes on business income through their personal tax returns (Form 1040 or Form 1040-SR for seniors). Corporations must pay tax on business income through a corporate tax return—Form 1120.
- A single-owner business (sole proprietor or single-owner LLC) reports business income on Schedule C.
- A partner in an S corporation, a partner in a partnership, or a member (owner) of a multiple-member LLC reports their share of business income on Schedule K-1.
- Corporate owners get dividends, so they complete Schedule B (Interest and Ordinary Dividends) showing the dividends they received.
- S corporation owners may also receive income as an employee. This income is reported on a W-2 form and included on the owner's tax return.
Some businesses have elected to pay business taxes as a corporation or S corporation. For example, an LLC can elect to pay taxes as a corporation. Read more about how to change your LLC tax status.
Paying Self-Employment Tax
Paying your business taxes also means paying self-employment tax (Social Security and Medicare taxes), unless you own a corporation or S corporation. (S corporation owners are not considered self-employed for self-employment tax purposes.)
Self-employment tax is calculated on your net income from your business, or your portion of the total net income, on Schedule SE. This tax is included in your total income and tax calculation.
Paying Business Taxes for Corporations
The best way for a corporation to pay its business taxes is through the Electronic Federal Tax Payment System (EFTPS). You will need to set up an account using your Taxpayer ID (EIN or SSN), a PIN number, and an internet password. You can schedule your payments in advance and track payments with email notifications.
You can also use EFTPS to make employment tax payments and estimated tax payments for your corporation.
Paying Business Taxes—Options for Small Business Owners
You have several options for paying your combined business and personal taxes.
You can use Direct Pay to pay Form 1040 taxes and estimated taxes from your bank account. To make a payment, follow the Direct Pay online instructions, selecting the reason for payment. You will be asked for your bank account information. You can't use Direct Pay to pay from your credit or debit card.
Pay With a Credit or Debit Card
You can use one of the IRS-approved payment processors to make a credit or debit card payment to the IRS. Each of these processors charges a fee, which doesn't go to the IRS. Card-processing fees are tax-deductible for business taxes.
Pay When You E-File
You can pay by debit or credit card when you e-file your taxes using a combined business and personal tax preparation software program or through a service provider. Most of these software providers include the processing fee in their cost.
Paying Estimated Taxes
One way to avoid a large tax bill—with fines and penalties for underpayment—is to pay quarterly estimated taxes. All of the options above are available for paying your estimated taxes. Your first estimated payment for the year is usually due on or around April 15, along with your tax bill. Then, you make three more payments—June 15, Sept. 15, and Jan. 15 of the next year.
The IRS extended the filing deadline to June 15, 2021, in Texas and the surrounding states of Oklahoma and Louisiana, which were declared winter storm disaster areas. This also applies to businesses and deadlines for estimated tax payments.
If you pay your business income taxes as part of your 1040, make estimated payments as an individual. Corporations generally have to make estimated payments if they expect to owe $500 or more when the return is filed.
If you file using business tax software or a tax preparer, they should give you a schedule of estimated payments for the year. You can do a quick calculation of the amount of estimated taxes you need to pay. And don't forget to include self-employment tax!
Paying for Tax Preparation
Paying for tax preparation can be divided easily between your business tax form (Schedule C or Schedule K-1) and your personal tax return. Ask your tax preparer to divide your bill into two parts: one part for preparation of the business tax form, and one part for preparation of your Form 1040. Then pay the bill for the business tax form with your business account or card. Self-employment taxes are considered a personal expense, so you shouldn't pay those with your business account.
What If You Can't Pay?
Your taxes—business and personal—are due on the same date your taxes are due. The IRS offers several options if you can't pay your taxes on the due date.
You can apply for a payment plan (including an installment agreement) to pay your taxes online over time. You can apply for a short-term plan, paying within 120 days, or a longer-term plan. Apply with an online application, and get immediate notification of approval. The IRS charges a fee for payment plans and interest, and penalties may continue in some cases until the balance is paid.
If you owe more than $50,000 you may have to file an Installment Agreement Request.
If you pay your business taxes through your personal return, apply online. A business payment plan option is also available.