Filing Small Business Taxes for the First Time: What to Know
As a small-business owner, you are responsible for making various decisions for your business. One of these is how your business will file its taxes. There are a lot of components that go into determining how and when your business pays its taxes, and there are some options for you to choose from to find the most efficient and cost-effective tax preparation requirements and forms. If this is your first time filing business taxes, there are several things you should know.
Different Businesses, Different “Rates”
When filing small business taxes for the first time, you may not be aware the federal government charges different tax rates depending on your business type. There are several different tax structures the IRS uses to classify types of business “entities” and their related tax returns: C-corporations, S-corporations, partnerships, and sole proprietorships. LLC’s, meanwhile, will generally be taxed under one of these entity classifications. C-corporations pay an applied corporate federal tax rate, while partnerships, sole proprietorships, and S-corporations are pass through entities and taxes are paid through the personal income tax returns of their owners, at the resulting effective personal tax rates. Because each entity has a unique tax planning and related tax or pass through tax rate it is important to talk to a professional about what entity of choice is right for you.
Different Forms and Deadlines
In addition to applying different tax rates, the IRS also requires you to use different forms when filing small-business taxes for the first time and every other time after. Sole proprietorships and LLCs with only one owner can file using the IRS’s Schedule C, along with their personal income tax returns. Corporations and LLCs operating as corporations, however, must file Form 1120 or, for S-corporations, Form 1120S. Partnerships and multi-owner LLCs, meanwhile, file Form 1065. These business tax returns will be in addition to the business owners personal tax return.
Lastly, depending on the structure of your business, you may find you have an earlier deadline to file some of your federal tax forms. Businesses that can use Schedule C can submit their filings to the IRS by the traditional April 15 deadline. Those using Form 1120 are required to file by the 15th day of the fourth month after the close of the tax year. This may mean April 15 as well, if you have a calendar year as your business year. Businesses using Form 1065 or Form 1120S, meanwhile, typically have a December 31 year end and must file by the 15th day of the third month after the closing of the tax year, which is usually March 15.
Additional Business Taxes
The federal government isn’t the only agency that collects business tax dollars. Your business may have to pay state and local taxes as well, which can also vary between businesses and states. For example, some businesses must pay an income tax, payroll tax, excise tax, and/or sales tax depending on their industry or operations and the specific state.
DIY or Outsource
To file your business taxes, much like your personal income taxes, you may elect to do it yourself or in-house for your business. However, keep in mind that means you or your employee will be personally responsible for gathering all the necessary income and expense records, filling out the correct forms, and meeting the filing deadlines. You or your employee will have to keep up to date with the ever-changing tax laws and which ones then apply to your business. If you have an in-house staff accountant, they should have the expertise to handle these requirements, but hiring a full time or even part time staff accountant isn’t cheap. Good news is there is a third option: outsourcing to a third-party provider and professional.
For a small business, outsourcing certain administrative duties, such as tax filing and payroll reporting, is a good option because it allows the business access to expert services while being less expensive than hiring one for in-house service. While larger companies may prefer the direct control that handling tax preparation in-house offers, a small business owner like you will often prefer to outsource and take the complex burden off yourself and your staff.
Payroll Vault is Ready to Prepare Your Payroll Tax Returns
We at Payroll Vault are more than happy to provide our expertise to business owners like you. We’re a payroll and human resources business that offers a boutique-style selection of payroll services, from planning payroll to payroll tax filing, we are ready to provide you with the services you need, whether you’re filing small business payroll taxes for the first time or have filed them before and are looking for a better way. Find out more about what we can do to help your business run smoothly by getting a quote online or visiting your nearest Payroll Vault location today!
