How you prepare and file your taxes, depends entirely on what type of small business you have; whether you run it as the sole proprietor or use a legal entity like an LLC or corporation. Depending which applies to you, there will be a tax form to report the income from your business and its expenses. While the forms are different, the way in which you calculate your taxable income, is much the same.
What you should do first:
Gather up all your business records – those that report the earnings of your business and all your business expenses – and have them to hand. If you use computer programs or spreadsheets to record all your yearly transactions, then that makes your job easier when trying to calculate your income and any deductions.
What you should do next:
Find the appropriate IRS tax form for your type of business. If you are the sole proprietor then you will be able to report your business income and expenses on a Schedule C attachment to your personal income tax return. If you run your business as an LLC and you’re the sole owner, then you will also be permitted to use the Schedule C attachment. However, a separate corporate tax return on Form 1120 must be filed if you use a corporation or elect to treat your LLC as one.
Then complete the form:
Complete your Schedule C or 1120 form, and if you’ll be using Schedule C, you can go on to the IRS website to locate it, or if you’re using the services of a tax professional, they will generate a copy of the form for you once you’ve inputted the relevant information.
If using Schedule C, you’ll find it a straightforward way of filing your taxes as it is short and includes a comprehensive list of claimable expenses. Once you’ve filled it in, simply subtract your business earnings and you’ll be left with your net profit or overall loss. Whatever number you’re left with, can then be transferred to your personal income tax form and have it be included with your personal income tax items.
If you’re using a Form 1120, while the calculations will be the same as if you were using a Schedule C form, it requires you to enter more details that may not always be applicable to small businesses. This form is also separate from your personal income tax return.
Always be aware of deadlines
The date of April the 15thgenerally applies when filing a Schedule C form, but if you’re taxed as an S-Corp, you will need to file a Form 1120S by the 15th day of the third month following the end of the tax year, in other words, March the 15th. This form may not be attached to your personal income tax return and sent to the IRS.
Of course, should you wish to make this whole tax return affair somebody else’s responsibility, you could consider hiring a tax professional, who would do a lot of the hard work for you. Tax professionals are also fully aware of deadlines, changes to tax laws and regulations and will know exactly which forms need to be completed.