Your Complete Small Business Income Tax Guide
Small Business Tax Forms, Rates, and Filing Information
Small businesses calculate their business profit or loss for income taxes, then include this information on their personal tax returns. This guide will help you determine which forms to use and how to get the information for these forms.
This guide is for small businesses filing their tax returns on Schedule C with their personal returns (Form 1040). It includes sole proprietors and single-member LLC, owners. If your business is a corporation or S corporation, check out the Complete Guide for Corporations and S Corporations, If your business is a multiple-owner LLC or a partnership, here is a Guide for Business Taxes for Partnerships.
New Small Business Tax Deduction
As a small business owner, you may be able to get a new Qualified Business Income deduction of 20% off certain business income, in addition to normal business deductions. The deduction can be taken starting in 2018, through 2025. If you think you might qualify, ask your tax preparer. Most small business tax preparation software programs include this deduction calculation.
Because small businesses file their business tax returns with their personal returns, the due date is the same as the personal income tax return due date: April 15. If the due date falls on a holiday or weekend, the next business day is the due date for that year.
2019 Tax Due Dates Extended
The 2019 tax due dates for all income tax returns were extended from April 15 to July 15. July 15 is also the extended deadline for estimated tax payments for the first two quarters of 2020 (April 15 and July 15).
Schedule C Income Tax Forms
Here are the forms you will need for or sole proprietors and single-member LLCs, including the forms needed for calculating self-employment tax:
Tax Details Needed to Complete Schedule C
- Information to calculate cost of goods sold, if you have an inventory of products or parts for sale
- Information to prove all business tax deductions, including information on the costs of business travel, driving expenses, and business meals (entertainment expenses are no longer deductible)
- Information on costs for buying business assets like vehicles and equipment, to calculate depreciation deductions
- Information on the business use of your home, for a home business space deduction
Small business owners must pay self-employment taxes (Social Security/Medicare taxes) on the net income (profit) from their businesses. If you don't have any income from the business during the year, or your income is $400 or less for the year, you don't have to pay self-employment tax.
A simplified explanation of how self-employment tax is calculated:
- Enter your business net income
- Multiply this income by 92.35% (0.9235)
- Multiply this number by 15.3% (the self-employment tax rate) to get your self-employment tax liability amount.
This amount is used to determine your eligibility for Social Security/Medicare benefits for the year. If you don't have any income, you can't get credit for these benefits that year.
You can deduct one-half of the self-employment tax to reduce your adjusted gross income for the year.
A tax software program or tax preparer can calculate this tax for you, or you can run the calculation yourself using Schedule SE.
How to Add Schedule C to Your Personal Tax Return
Add your business net income on Schedule C (Line 31) to your personal income tax return on Schedule 1, line 3 (Business Income/Loss). This schedule is used to total additional income and adjustments and bring them into your Form 1040 or 1040-SR.
Enter your total self-employment tax from Schedule SE on Schedule 2 of Form 1040 (Additional Taxes). The deduction for one-half of the self-employment tax is entered on Schedule 1.
Add any tax credits or other business adjustments you are qualified to receive to Schedule 1, including the deduction for half of the self-employment tax.
How to File Your Tax Return, Including Schedule C and Schedule SE
You can file your tax return by mail or you can e-file the return. The last page of the instructions for Form 1040 lists the addresses to use for mailing your tax return to the IRS. If you are using tax software, the e-filing fee will be included in your cost. If you are using a tax preparer, this cost is also included.
Filing an Application for an Extension on Your Taxes
You may apply for an automatic extension of time to file your taxes, including your small business taxes. The extension is for six months for non-corporate tax returns, so the due date for the return is October 15 (unless October 15 is a weekend or holiday, in which case the due date is the next business day).
Your extension doesn't include an extension for payment. You must pay your taxes by the tax due date to avoid penalties and interest.
Filing an Amended Tax Return
If you make a mistake on your tax return, whether the error is due to your business or personal taxes, you must file an amended return. The form to amend your tax return depends on your business type. To amend your personal return, including Schedule C, use Form 1040X-Amended Return.
Paying Estimated Taxes
If you don't pay enough taxes during the year, you must pay estimated taxes. Many small business owners must pay estimated taxes because they don't earn a salary, so no taxes are withheld from their income or self-employment. Estimated taxes are due quarterly: April 15, July 15, October 15, of the current year and January 15 of the following year.
Do I Need a Tax Preparer?
A very simple small business with no cost of goods sold or assets to be depreciated might be able to use a tax software program, but most small businesses need a tax preparer. Even a simple Schedule C might be more difficult than you think.
IRS. "Filing and Payment Deadline Extended to July 15, 2020 – Updated Statement." Accessed July 4, 2020.
IRS. "Instructions for Schedule SE Self-Employment Tax." Page 2. Accessed July 4, 2020.
IRS. "Schedule SE Self-Employment Tax." Accessed July 4, 2020.
IRS. "Instructions for Form 1040 and 1040-SR." Page 8. Accessed July 4, 2020.
RS. "Instructions for Form 1040 and 1040-SR." Page 6. Accessed July 4, 2020.
IRS. "Instructions for Form 1040 and 1040-SR." Page 76. Accessed July 4, 2020.