You can drown in the IRS website figuring out how to file your small business taxes. But no one ever grew a business by drowning, so we put together a simple, plain language guide to getting your small business taxes filed, no matter what business entity you are.
Whether you're a first-time filer with a new business or want to smooth out your experience, here's the mission-critical info you need to get your federal income taxes filed.
Good tax preparation begins with recordkeeping. Before you start the process, collect all your relevant business records. What's relevant, you ask? Depending on your type of business entity, you'll need different things, but start here:
You'll also need to collect everything related to your earnings and expenses. On the earnings side, this could be:
On the expenses side, collect receipts for any costs you incurred during operation. Think of the following things:
Different small business entities need to supply different information for their returns, so we created a small business tax checklist for each type.
And if you want to avoid the dreaded task of sorting through shoeboxes full of crumpled business-related papers, Accracy can help. Our small business bookkeeping solution tracks your earnings and expenses throughout the year and keeps your records in our online app, so they're always accessible.
How Accracy can help
Filing taxes may be the finish line, but bookkeeping is the marathon that gets you there. With Accracy, you have a team of experts running that distance for you.
Your Accracy bookkeeping team automates your financial admin by connecting bank accounts, credit cards, and payment processors to import information into our platform. Your team also answers questions and completes your tax prep ahead of filing.
With a premium Accracy subscription, we handle your bookkeeping and provide year-round tax services, including tax filing. We file your federal and state taxes and give you access to unlimited, on-demand consultations with a tax professional. We're here to ensure you're up-to-date on the latest tax information, maximizing every deduction and seizing available tax credits to minimize your tax bill. Learn more.
Once you have your recordkeeping sorted, it's time to get your hands on the right tax form. The form you use depends on the type of business you operate.
Filing Deadline: April 15 or the next business day if it falls on a weekend or holiday (the same as your personal taxes)
If you own an unincorporated company by yourself, or you're an independent contractor, or a Limited Liability Company with one member, file as a sole proprietor.
Filing as a sole proprietor means you report your business earnings and expenses through an extra form attached to your personal income tax return—called a Schedule C—and pay taxes based on individual income tax rates.
Schedule C is only two pages, and the IRS has fairly detailed line-by-line instructions to help you get it right. When you've finished, just subtract your total expenses from your earnings to get your net profit or loss. Include this number in your personal tax return.
If you're planning on claiming itemized tax deductions, you'll need to tally those on Schedule A.
If your total income is below $73,000, you can use the IRS Free File software to file your taxes. If your income is higher than $73,000, you can still take advantage of the IRS free fillable forms.
If you're going analog and filing a hard copy of your tax return with the IRS, find the address for your state here. Make sure it's postmarked on or before the deadline.
Heads up: sole props and LLC members are considered self-employed, meaning they're subject to self-employment tax (made up of social security and Medicare).
Filing Deadline: March 15 or the next business day if it falls on a weekend or holiday
Partnerships can take different forms, but for tax purposes, they all file small business taxes in the same way. The same goes for limited liability companies with multiple members that elect to file taxes as a partnership. If your small business falls in this category, you need to file an information return, Form 1065.
Each individual member will get a Schedule K-1 showing his or her share of the profit/loss for the year. Then, each member pays taxes on the share of profits reported on their personal tax return.
The IRS has instructions to help you navigate Form 1065, but this form is complex and usually requires the help of a tax professional.
Partners can claim unreimbursed business expenses on Schedule E.
Filing Deadline: April 15 or the next business day if it falls on a weekend or holiday (the same as your personal taxes)
If your small business is set up as a C corporation, or if you treat your LLC as one, you'll need to prepare a separate business income tax return with Form 1120, in addition to your personal taxes.
Thanks to the Tax Cuts and Jobs Act, the corporate income tax rate is a flat 21%. But you'll still need to pay taxes twice: once at the corporate level and again on your personal income tax return. Form 1120 is also where C corps claim relevant tax deductions.
Form 1120 is similar to the Schedule C form, but it is more complex, requires more detail, and is separate and distinct from your personal tax return. The IRS has instructions for Form 1120, and it's great to have a scan to understand the nuts and bolts, but most small business owners elect to hire a professional to complete these forms.
Filing Deadline: March 15 or the next business day if it falls on a weekend or holiday
If your business is a C corp or LLC that has elected S corp status, you need to file a separate corporate tax return, but you will use Form 1120S. S corp shareholders will need to report their share of profit or loss with a Schedule K-1 on their personal taxes, but the corporation still needs to file its own tax return. Form 1120S is also where S corps claim any relevant deductions.
The IRS has instructions for Form 1120S to help you out, but again, most small business owners elect to use a professional.
Filing Deadline: Sent to recipients by January 31 or the next business day if it falls on a weekend or holiday
If your small business has paid $600 or more to a contractor or professional (i.e., someone who worked for you or provided you with a service but is an employee), you'll also need to file Form 1099-NEC as part of your taxes. Check out our guide to filing 1099s to learn more. These forms need to be ordered from the IRS, so you need to ensure that you request them well in advance of the January 31 deadline.
In the past, 92% of Americans chose online electronic filing. That's because filing online:
When you file your own taxes online with the IRS (sometimes called e-file), you have two options: Free File and Free File Fillable Forms. If your adjusted gross income (AGI) for the year is less than $72,000, you can use Free File. If it's over that, you'll have to use Free File Fillable Forms. If your tax situation is complex, you may need to hire a professional to help with tax filing. The cost of tax filing varies, but having that peace of mind can make it worthwhile for small business owners.
When you use Free File, you do your taxes using online software that automatically sends a copy to the IRS. You don't have to get your hands dirty filling out forms or making calculations. It's a popular choice—about one in three Americans use it.
The IRS has partnered with 9 providers who offer free online tax filing. So, you don't sign up for Free File through the IRS website—you automatically start using it once you sign up with one of the 9 approved providers.
Choosing a Free File provider
Each provider has a free tax filing package you can use. Besides that, there are paid tiers that offer more features. Generally, the more complex your tax filing, the more features you'll need.
Unfortunately, if you run a business, a free filing package likely won't cut it. It won't include the advanced features you need or the necessary forms to file for your business.
Also, keep in mind this is for federal taxes only. Most online providers also offer state tax filing (like sales tax) at an additional charge. When Accracy handles your taxes, state income tax and franchise tax filings are included at no additional charge. It's all included in your subscription!
If you're not sure which software provider to go with, Fit Small Business has a breakdown of the pros and cons of each.
With Free File Fillable Forms, you're essentially filling out electronic versions of paper tax forms. You do it through the IRS website. They handle basic calculations but don't do any error checking. It's up to you to make sure you fill in everything correctly.
How it works
Once you create a Free File Fillable Forms account with the IRS, you can log on to select and fill out the relevant forms for your business. After filling out the main part of your return, you'll need to select which income documents you're including—W2s or Form 1099s, for instance—and then enter information from them.
Free Fillable Forms automatically estimates how much you'll receive as a tax refund—or how much you'll have to pay. You can pay your taxes (or get your refund) by entering your bank info and setting up a direct electronic funds transfer (EFT).
Finally, you digitally sign your return and submit it to the IRS. You have the option of printing off a copy for your records.
Is it worth it?
Free File Fillable Forms only works for the current tax year—so you can't use them to file back taxes. And it's only for filing federal taxes, not state.
Using Free File Fillable Forms only makes sense if you're already experienced and comfortable with filing your own business taxes by hand—and if those taxes aren't too complex. If all the above applies and you don't want to do your taxes with a pencil, then the Free File Fillable Forms are a great choice.
If your business entity is more complex than a sole prop or an LLC, a far better option is to find an accountant who can file your taxes for you.
If you expect to miss your filing deadline, don't worry about the IRS throwing the book at you for not filing your taxes. You can always apply for an extension.
While this gives you some extra breathing room for getting your tax preparation complete, it's important to note that you still have to pay your estimated taxes by the original deadline.
Further reading: How to File for a Business Tax Extension (Federal)
Most businesses are required to pay taxes four times a year in estimated tax installments.
Want to calculate how much tax you'll owe? Use our handy estimated tax calculator.
When Accracy files your taxes, we take out the guesswork of calculating your taxes. Your tax team provides the following year's Quarterly Estimated Tax vouchers for you. You just need to submit the payments on time.
You can pay estimated taxes online or by phone via the IRS Payments Gateway.
For corporations, payments must be filed through the Electronic Federal Tax Payment System.
If you have concerns about paying your taxes or you've fallen behind on payments, check out the IRS Fresh Start program. They offer flexible options for businesses struggling with their tax bill.
Filing your federal tax return is important, but so is keeping up on your state and local taxes. Local governments and their Department of Revenue will charge property taxes, sales and use taxes, and more depending on your business operations. Work with your accountant or tax professional to ensure you aren't missing any important taxes or due dates.
With a premium Accracy subscription, you get access to unlimited, on-demand consultations with our tax professionals to keep you on track for tax season success and beyond. Free up your time to focus on your business by bringing in professional, experienced support to manage your financial reporting without having to add these experts to your payroll. And did we mention our services are a tax deductible expense? Get started today.
We are offering free 1 Month Basic Bookkeeping to all new customers so you can experience Accracy's seemless and professional services.
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