There are several different ways in which you can file your federal income tax return for your small business, when the time comes, and it will depend upon whether your business is being run as a sole proprietorship or with a legal entity like an LLC or corporation.
Both types require a different tax form to report the income and expenses of your business, but irrespective of which form you need to use, the way your taxable business income is calculated is very similar.
Here are four steps that you’ll need to follow when filing federal income taxes for your small business:
- Gather up your records
Before you file any tax form to report the income of your business, you should ensure that you’ve got all the relevant records at hand. You’ll find that calculating your income and deductions is made much easier with the use of a spreadsheet or similar computer program, as trying to remember every sale or expenditure that occurred throughout the year is nigh on impossible and more likely to be inaccurate.
- Locate the correct form
How you operate your business, will determine which IRS form you need to file to report your businesses earnings. A schedule C form is attached to the personal income tax return, for those small businesses who use a sole proprietorship. You can also use a schedule C form if you run your business as a LLC and you’re the sole owner. That said, if you use a corporation to treat your LLC as one, then you will need to complete a separate, corporate tax return on a Form 1120.
- Complete the relevant form:
Fill out the appropriate form, either a schedule C or a Form 1120, and if using a schedule C form, simply subtract your personal expenses from your business earnings to enable you to reach a net profit or loss. You then need to transfer this total to your personal income tax return form, and then include it with all your other personal income tax items.
If you’re completing a Form 1120, you can calculate your taxable business income in precisely the same way, but you’ll be required to give many more details that might not always be applicable to a small business. It is also entirely separate from your personal income tax return.
- Don’t forget about deadlines:
There are different deadlines, for different forms, and it’s important that you take heed of them so that you can avoid late filing and any penalties that might apply. A Schedule C form becomes part of your Form 1040 and should be filed before April 15th.
Form 1120 must be filed by the 15th day of the fourth month that follows the end of the tax year, which again, is April 15th.
For more details about filing your businesses federal income tax, you can refer to the IRS website or simply engage with the professional services of a tax and consulting firm, who will have all the latest information about deadlines and changes to laws at their disposal, and will ensure that you file your taxes in a timely and accurate manner.