According to Benjamin Franklin, nothing in life is certain except death and taxes. Incorrectly filed taxes can be the death of your business. The answers to these common business tax questions could help keep your business alive.
1. What forms do I need to use?
It depends on your business and if you pay business taxes through your personal taxes.
- Sole proprietor and single member LLCs need to include a completed Schedule C with their tax returns.
- Partnerships and multi-member LLCs need to include both a completed a Schedule K-1 for each LLC member or partner and a completed Form 1065 with their tax returns.
- S Corporations need to file a completed Form 1120-S with their tax returns.
- Corporations need to file a completed Form 1120 with their tax returns.
- Taxes paid through personal tax returns must include a competed Schedule SE.
2. How are a form W-2 and a Form 1099-misc different?
They are information returns that serve different purposes.
- Businesses use Form W-2 to report employee income, withholdings and any state and local taxes.
- Businesses use Form 1099-MISC to report payments made to non-employees, such as independent contractors.
3. When are my business taxes due?
Business taxes can be paid over a calendar year or a fiscal year. Due dates can vary, but the IRS lists these common tax due dates.
- Businesses that use a calendar year have to pay taxes by April 15th (the fourth month following the end of the tax year). This includes Schedule C for sole proprietors and Schedule F for farmers.
- S Corporations and Partnerships that operate on a calendar year must pay taxes by the 15th day of the third month (March 15th).
- Corporations that use a fiscal year for tax purposes must pay taxes by the 15th day of the fourth month following the end of their fiscal year(for example tax years ending on July 1st must pay taxes by October 15th).
4. How do I know if my workers are employees or independent contractors?
Designating a worker as an employee or an independent contractor boils down to who has the most control. You have to consider who controls what the worker does, who controls what the business does and how the worker and the business understand the relationship.
A worker is usually considered an employee if the business owner controls how often they get paid, how they perform their job and if they are full-time or part-time. You can also submit a Form SS-8 to the IRS and they will decide for you.
5. What expenses can I deduct from my business taxes?
Only items that are necessary for doing business are deductible. This includes computers, office furniture and office supplies. You may be able to deduct the cost of home office space, portions of your utilities and internet access if you operate your business from your home.
6. What expenses are not deductible from my business taxes?
Only business expenses are tax deductible. Personal expenses such as clothing, traffic tickets and dry cleaning cannot be deducted on business tax forms. Many other items are also not deductible. The IRS can provide a more extensive list.
7. How do I know if I need a tax identification number?
All businesses need a tax identification number. The kind of ID you need depends on your type of business.
- Singe owner businesses and sole proprietors can use their social security numbers as tax ID numbers.
- All businesses, except single owner and sole proprietors, must have an Employment Identification Number (EIN).
- Business owners who don’t have social security numbers must have an Individual Taxpayer Identification Number (ITIN).
8. Do I have to file taxes if my business had no income this year?
There are some cases where partnerships don’t have to file taxes if they have no income. Partnerships should consult the IRS for specific details. Corporations have to file information forms if they have no income to report.
9. What taxes do I need to pay?
Every business must pay one or more of the following four taxes.
- Income tax: Every business except partnerships file income tax annually. Partnerships usually only file an information return.
- Employment taxes: Every businesses with employees must pay employment taxes.
- Excise Tax: This tax applies to specific types of businesses outlined by the IRS.
- Self-Employment taxes: Every person who works for themselves must pay self-employment taxes.
10. Do I need to pay estimated taxes?
Partnerships, S Corporations and the self-employed may need to pay estimated taxes in increments throughout the year. How much you pay is determined by completing Form 1040-ES Form 1120-W.
The key to surviving tax season is understanding how taxes work for your business. Don’t be afraid to ask questions or to hire an accountant to make sure you’re following all the rules. The more you understand about filing business taxes, the less likely taxes will be the death of your business.