Filing small business taxes for the first time can be pretty intimidating.
There are so many forms to file, receipts to keep up with, and dates to remember. Then there’s the pressure of missing potential deductions, overlooking something important, or heavy penalties if you miss a deadline.
Small business owners like you have enough on their plate without the added stress that comes with filing taxes for the first time. So we hope this post answers some of your questions and helps things go smoothly.
Let’s dive in so you can start to breathe easier!
Filing Small Business Taxes For The First Time
Here are 6 tips that will save you a lot of time and trouble when you file your taxes for the first time this year:
- Know Which Forms To Use. We’ve talked about these before in other posts, and even did a webinar on choosing the right entity for your business that you can watch for free. Here’s a quick rundown of the 4 structures you’re likely to use:
- Sole Proprietorship – the simplest option and the default structure in the eyes of the IRS unless you specify otherwise. Your business and personal assets are not separated, and you file business taxes as part of your personal return.
- Partnership – common among doctors, lawyers, and other businesses with multiple owners. There are a couple of ways to set this up depending on how much personal liability the members what to have.
- LLC – like running a sole proprietorship where your personal assets can’t be affected. This is a good choice if you are in a high-risk industry for litigation.
- Corporation – the most complicated option, usually used only by large businesses. They are treated as separate “individuals” from any of the owning members and are usually taxed twice: once when profits are received, and again when distributions are made to shareholders.
- Gather Your Documents. You’ll need the following records at the bare minimum. If your business is more complicated than most, your CPA may ask for additional items.
- Receipts (more on that in a minute)
- Income – Sales records, bank account interest earned, any other
- Payroll records – employees, contractors
- Expenses – rent, fees, payments to contractors, auto & travel, marketing & advertising, office supplies & equipment, etc.
- Pick Your Accounting Method. This matters because it determines when you pay taxes on the revenue you receive. Which one you choose really depends on how you prefer to operate your business, and your accountant can help you if you’re not sure. The two methods are:
- Cash – Income is recorded when collected, and expenses are recorded when paid
- Accrual – Income is recorded when earned, and expenses are recorded when caused
- Choose A Depreciation Model. For tax year 2022, the IRS allows you to take a first-year depreciation of up to $1,080,000 under Section 179. This option is nice if you had high start-up costs in a “capital-heavy” industry like farming or manufacturing. Other businesses with lower start-up expenses may prefer to spread depreciation out over several years to help reduce their tax burden later when they’re generating even more revenue.
- Claim Your Deductions. This is where gathering your list of expenses pays off. You can save some serious money and lower your tax bill with deductions, so be sure you take advantage of all that you qualify for! Here’s a brief list, but for more be sure to read the post we did on “16 Small Business Tax Deductions To Really Save You Money This Year.”
- Home office
- Start-up Expenses
- Interest Payments
- Utilities
- Rent
- Insurance
- Vehicles
- Advertising
- …and so much more! A good CPA who understands your business can help you uncover them all.
- Know When Things Are Due
The IRS imposes pretty stiff penalties for failing to file your small business taxes on time, so it’s worth paying attention to.
Your personal income taxes are generally paid when you file your taxes (unless you have regular withholdings as an employee of your business.) Your business income and self-employment taxes are handled by making estimated payments throughout the year.
How Often Do Small Businesses Pay Taxes?
According to the IRS, estimated tax payments are due on the following schedule:
- January 1 to March 31 are due April 15.
- April 1 to May 31 are due June 15.
- June 1 to August 31 are due September 15.
- September 1 to December 31 are due January 15 of the following year.
When you file your return at the end of the year, your actual tax liability will be calculated. Your CPA will then compare it to what you paid for each of your quarterly estimates. If you underpaid, you’ll need to send the difference along with your annual return. If you paid too much, you’ll get a refund.
Full information from the IRS is available on their page called “Pay As You Go, So You Won’t Owe.”
We completely understand how tough it can be to keep up with all of the important dates you have to remember when it comes to your small business taxes.
That’s why we put together a downloadable 2023 tax calendar. It’s completely free, and your’s for the taking. Just click the link or the button below.
Do I File My Business Taxes With My Personal Taxes?
It really depends on what type of business structure you operate under. All of them except for C Corporations are considered “pass-through entities.”
A “pass-through entity” is one in which the business’ taxes pass through the owner to the IRS. They are not filed separately. You simply attach form Schedule C to your personal return to report profits or losses from your business.
Here’s how it works:
- Calculate the business’s taxable income before the owner’s compensation is taken out.
- Taxable income is then divided according to the owner’s share.
- The owner(s) are responsible for reporting their share of the income on their personal 1040.
- The owner(s) pay taxes based on the income they received from the company.
How To Prepare Receipts For Your Accountant
One last important note: As with anything in business, being able to function effectively usually boils down to being able to operate efficiently. For taxes, that means keeping good records.
If you are filing taxes on your business for the first time, the number one thing you can do to make the process go smoothly is to maintain accurate records and receipts. Here are a couple of posts we did recently that cover receipts in detail.
- Keep Up With Receipts Like a Pro With These 3 Simple Tips
- 3 Ways to Manage Receipts and Save Your Business Money
We Know How To Do Small Business Taxes
As CPAs who have been helping clients for over 40 years now, we know how to do small business taxes! Our team can guide you through the process of filing your returns accurately and on time so you can get back to doing what you do best…growing your business.
Schedule a call today to get started!
