Top 9 Business Tax Filing Questions
Common Questions About Preparing and Filing Business Taxes
The passage of the Tax Cuts and Jobs Act (TCJA) in 2017 had some major effects on business taxes. The tax law went into effect in 2018, and it includes some pluses and minuses. The possible benefits for your business include:
- A cut in the tax rate for corporations to 21%
- An additional tax cut for eligible small businesses, including sole proprietors, partners, and LLC members
- Increases in the amounts of depreciation for first-year purchases of business equipment, vehicles, and other big-ticket items
- A tax credit for businesses that give employees paid family leave time
The new restrictions and limits include:
- A limit on the amount of interest expense that larger businesses can deduct
- The elimination of tax deductions for entertainment expenses, with some exceptions
- The elimination of deductions for commuting benefits for employees
Many other rules and laws remain the same, however. Here's some information to guide you as you enter into tax filing season.
The form you would use to file your business taxes depends on your business type:
- Prepare and file Schedule C, and include it with your personal tax return if your business is a sole proprietorship or single-member LLC.
- File Form 1065, a partnership return, as well as Schedule K-1 for each partner or LLC member, if your business is a partnership or multiple-member LLC.
- Use Form 1120-S for S corporations.
- Use Form 1120 for corporations.
You must also complete Schedule SE for calculation of self-employment taxes if you're reporting your business income on your personal tax return.
Changes in due dates for corporate and partnership taxes took effect in the 2018 tax year as well.
Corporate taxes are due four and a half months after the end of the corporation's fiscal year-end. Tax returns are due April 15 for all December 31 year-end C corporations.
In 2021, the federal government extended tax relief to those affected by winter storms in Texas and neighboring states. All businesses and individuals affected may choose to delay filing tax returns and paying any taxes due until June 15, 2021. This covers returns that would normally be due April 15, as well as estimated quarterly taxes due April 15 and any business returns due March 15.
Partnership and S corporation tax returns are due March 15. This includes multiple-member LLCs filing as partnerships.
The due date is April 15 for sole proprietor and single-member LLC businesses filing Schedule C with their personal tax returns.
The IRS extended to May 17, 2021, the filing deadline for individual tax returns, which include sole proprietors and single-member LLC businesses using Schedule C. This is also the due date for payment, although regular quarterly estimated taxes are still owed on April 15 to avoid penalties.
Your business can apply for an extension to file tax returns, but the extension doesn't exempt you from your obligation to make tax payments on time by the original due date. Filing for an extension isn't necessary if you qualify for disaster relief and plan to file by June 15.
What Information Do I Need to File My Business Tax Return?
The most important calculation that all business types will need for tax filing is for net business income on a profit-and-loss (Income) statement and a balance sheet. You'll also need records for deductions you're claiming, and for purchases of business assets like vehicles and equipment.
You might also need some additional information to complete your business tax return:
Cost of goods sold is an important calculation for businesses that manufacture or sell products. The result of this calculation affects the business's net income.
Cost of goods sold (COGS) is calculated beginning with your inventory cost, then adding the cost of additional inventory manufactured or purchased during the year. Subtract the cost of ending inventory from the total. The result is your cost of goods sold.
COGS is included on Schedule C for sole proprietors, as well as in other business tax reports for partnerships and corporations.
Your best option is to file federal income taxes online, either by e-filing, through your tax preparer, or by using tax preparation software. The e-file system includes two ways to pay and two types of e-filing, depending on the type of form being filed. You can also e-file and pay using a debit or credit card.
Penalties and interest will begin to accrue if you can't pay your taxes by the due date for your return, but the IRS provides some late payment options.
Late fees do not apply to those affected by winter storms in Texas and neighboring states who file all returns and pay all taxes owed by June 15, 2021.
You might be able to get a short 120-day extension, although interest and penalties will still apply. You can also ask for an installment plan to pay over a longer period of time, or you can pay with a credit card or debit card for a fee. The fee is generally charged by the card issuer, not by the IRS.
Every business must prepare and file a business tax return, even if it had no profit for the year. A business filing on Schedule C should include business tax information with its personal tax return, and there might be credits from the business that can apply to your personal taxes.
Sole proprietors, partners, and members of LLCs must pay self-employment taxes (Social Security and Medicare), in addition to business income taxes. Employed individuals split these taxes, paying half while their employers pay the other half, but self-employed individuals must pay the full amount. Calculate your self-employment tax on Schedule SE, and include it with your tax return.