Understanding Your First Business Tax Return
Filing your first business tax return can be confusing, but understanding the basics will help you feel more prepared and confident. Different business entities will have some variations on their returns.
Common Business Entities and their Forms:
- Sole Proprietorship: File using Schedule C attached to your personal Form 1040, reporting income and expenses.
- LLC: Single-member LLCs file like sole proprietors using Schedule C, while multi-member LLCs file as partnerships using Form 1065 with K-1s issued to each member.
- S Corporation: File using Form 1120S, with K-1s issued to shareholders for their share of income and deductions.
- C Corporation: File using Form 1120, and the corporation pays taxes on its profits directly.
Common Forms Filed by all Entities:
- Federal and state income tax returns for your business entity type.
- Payroll tax returns if you have employees (Forms 941, 940 and state filings).
- Sales tax returns if your state requires them.
- Information returns like 1099-NEC for contractors.
Additional Tips:
- Keep clear records of income and expenses throughout the year to simplify the filing process. Dedicated Accounting software can make tax time much easier.
- Be aware of filing deadlines for your entity type, as they may differ (e.g., March 15 for S corps and partnerships, April 15 for sole proprietors and C corps).
- I recommend working with a tax professional to maximize deductions, depreciation and credits your business may qualify for.
- Plan for estimated taxes if your business is profitable to avoid underpayment penalties in the following year.
Final Thought:
Filing your first business tax return is a big step in your business journey. Working with a tax professional can help ensure your return is accurate while allowing you to take advantage of all deductions and credits your business is eligible for.
