Taxes are one of the certainties of life. The IRS will always come for its due, and as any small business owner will tell you, run-ins with the tax authority are best avoided. Contrary to popular belief, doing your own business taxes won’t land you in trouble. You don’t necessarily need to pay a tax professional to prepare your business tax return.
Not only is it easy to learn how to do your own business taxes, but it’s also a simpler and more cost-effective way to ensure compliance with your tax liabilities.
Can You Do Your Own Business Taxes?
Just the thought of having to prepare a business tax return might seem daunting if you’ve never done it before. You may not even know that you’re allowed to do it yourself, just like you’re allowed to be the registered agent for your own company. The IRS doesn’t require you to hire a tax professional to do your business taxes. You’re well within your rights to do your own business taxes.
The process is a bit different compared to your annual personal tax return filing, which only requires a couple of forms. You first need to understand how the business structure you chose is taxed; for example, how limited liability companies (LLCs) are taxed is different from an S Corporation.
With the right preparation and a bit of diligence, you can file your small business taxes successfully without having to hire a costly tax professional.
Benefits of Filing Your Own Taxes
You may feel that the entire exercise is a boring chore, but there are great benefits to learning how to do your own business taxes. The biggest benefit is that you save a lot of money. A tax preparer will charge at least $500 – $1,000 to prepare the return. The fees can be even higher depending on the complexity of your business. Doing it yourself saves money and also helps you understand how the tax law affects your business and what changes you could make to save on taxes.
Review Your Financial Statements and Other Tax Documents
Diligent bookkeeping is necessary to track business income and expenses for creating accurate financial statements. When you review these statements and other related documents while doing your own business taxes, you can catch any discrepancies and make the required corrections to ensure that you’re accurately reporting to the IRS and paying not a single dollar more in tax than what you’re required to. This oversight of your business finances lets you remain in full compliance with the tax authority and other government agencies.
Maximize Deductions and Credits
A thorough review of the financial statements and related documents will reveal any tax deductions and credits you can claim to maximize the tax benefits available for your business. As your knowledge about the tax law and how it impacts your business increases, you can identify many opportunities that exist to reduce the amount of taxable income generated by your business, which ends up reducing your tax payments.
Doing your own business taxes can be a very efficient way to comply with tax liabilities. You’re not having to wait around on an accountant or an outside tax preparer. They will obviously have other clients and won’t be prioritizing your tax returns. By taking some time to learn how to do your own business taxes and filling out and submitting all of the required forms and documents to the IRS, you save yourself from the hassle of finding a tax preparer who knows what they’re doing and also save money in the long run.
Can Be a Rewarding Experience
You’ll ultimately find this to be a very rewarding experience. You’ll expand your knowledge of tax law and how it relates to your business, enabling you to achieve more financial literacy. It will also ensure that you’re always paying in taxes exactly what you’re required and not a penny more.
How to File Taxes Based on the Business You Operate
Small businesses are typically required to pay federal, state and local taxes. The federal taxes are paid to the IRS, while the state and local taxes vary across states and municipalities. It’s best to approach your state and local tax authorities to understand any additional tax obligations for your business. The obligations may also vary based on your business structure, but you’ll generally be required to pay the following taxes.
Small business owners, freelancers and independent contractors are required to pay a self-employment tax to cover their Social Security and Medicare obligations. This tax is applied to the profit generated by the business and is required to be paid quarterly. If you make $400 or more in net earnings from self-employment, then you’re required to pay self-employment tax regardless of your age.
How to file self-employment tax:
Business owners with a corporation have to pay tax on their net income, which is the profit that a company has left over once it has paid all of its expenses. This business income tax is based on the amount of profit earned and must be paid annually. All businesses in the United States are required to file an income tax return. IRS Form 1120 is used to report business income and expenses for a corporation as well as to figure out the tax owed.
How to file income tax:
You’re required to make estimated tax payments to the IRS on earnings that aren’t subject to federal tax withholding, such as earnings from self-employment or freelancing. Sole proprietors, partners and S corporation shareholders need to make estimated tax payments if they expect to owe $1,000 or more in taxes when their return is filed. Corporations need to make these payments if the expected tax owed when the return is filed is $500 or more. These payments need to be made as your income is earned, and the IRS has quarterly deadlines in April, June, September and January.
How to file estimated tax:
The excise tax is charged on income generated by certain kinds of businesses that manufacture or sell certain products, receive payment for some services or use certain facilities, equipment or products. For example, there’s a set federal excise tax on cigarettes, and businesses that sell alcohol or tobacco need to register with the Alcohol and Tobacco Tax and Trade Bureau. They may be liable for state and local excise taxes as well. Federal excise taxes need to be paid quarterly while state and local excise taxes have their own schedules.
How to file excise tax:
Businesses are required to pay employment or payroll tax for all of their employees. This includes Social Security and Medicare, as well as federal and state unemployment taxes. These taxes are withheld from their paychecks and paid to the government by the employer. The final amounts are based on the total salary, wage, bonus, tips and commissions to the employees. You’re required to pay employment taxes to the IRS quarterly.
How to file employment taxes:
- Report wages and all compensations paid to employees using IRS Form W-2
- Use IRS Form W-3 to transmit W-2 to the Social Security Administration
- E-file forms and pay employment taxes
Things to Consider When Filing Taxes on Your Own
There are a few considerations to keep in mind when preparing your own business taxes. Remember, it’s best to be diligent throughout the process to make sure that you don’t make any mistakes.
- Understand the tax liabilities for the business structure that you’ve chosen. Invest in bookkeeping software to track business income and expenses for accurate financial statements.
- Know what taxes your business is liable for and how they’re to be reported to the IRS and other authorities so that you never miss filing deadlines.
- When preparing tax returns, gather all of your financial statements and other relevant documents to ensure complete accuracy in your filings. This ensures you only pay exactly what you owe in taxes.
- Don’t forget about any local and state tax obligations for your business and ensure timely compliance
Accurate Bookkeeping Is Critical For Tax Compliance
As a small business owner, it’s entirely possible for you to do your own business taxes. It helps you save time and money as you don’t need to pay a lot in fees to accountants and tax professionals. You also get an understanding of the tax law during the process and can utilize that knowledge to make your business more tax efficient.
However, none of this will be possible unless your books are in order. You need to know exactly what your business income and expenses are to accurately report them to the IRS and pay precisely what you owe in taxes. With doola Bookkeeping, experience cost-effective virtual bookkeeping that effectively provides you with the power of a full-fledged accounting division at a fraction of the cost. Prepare financial statements at the touch of a button and file your business tax returns stress-free.
How do I file my business taxes for the first time?
Before filing your business taxes for the first time, understand how your business is structured to figure out the taxes you’re liable for, then use the relevant IRS forms to file your returns and pay any taxes owed.
How do I file business taxes for an LLC?
As a single-member LLC, you’ll need to file the IRS Schedule C with your personal income tax return. It reports income and expenses from your business. Multi-member LLCs are required to file Form 1065 and Schedule K-1 for each member.
How are small businesses taxed in the US?
Small businesses in the United States are taxed based on their structure. LLCs are taxed based on the owner’s marginal tax rate based on their income while corporations pay a flat rate of 21% on business profits.
Is it tax-free for first-year businesses?
All businesses are required to pay taxes on the profits that they generate. There is no tax-free exemption granted by the IRS for businesses that are only in their first year of operation.
How long can you go without filing business taxes?
The IRS requires businesses to file a federal tax return and pay any taxes that are due either quarterly or annually. You can’t go a single year without filing any business taxes as that’s not allowed by the IRS.