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.
From start to finish, here’s the mission-critical info you need to get your 2020 federal income taxes filed.
1. Get your records in order
Before you start anything, 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:
Personal information (SSN, address, DOB, etc.)
Last year’s tax returns
Employer Identification Number (find yours on the IRS website)
You’ll also need to collect everything related to your earnings and expenses. On the earnings side, this could be:
- Invoices you sent to clients
- Records of any goods sold to customers
- Sales records that note money coming into your business
On the expenses side, collect receipts for any costs you incurred during operation. Think of the following things:
- Rent receipts for your small business
- Office supplies
- Employee salaries
- Client lunches
- Mileage records
Different small business entities will 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 shoe boxes full of crumpled business-related papers, Bench can help. Our small business bookkeeping tracks your earnings and expenses throughout the year, and keeps your records in our online app, so they’re always accessible.
2. Find the right form for your business structure
Now that you have your records sorted, it’s time to get your hands on the right tax form—and this depends on what kind of small business entity you operate.
Sole proprietorship or LLCs with one member
Filing Deadline: May 17, 2021 (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. You’ll report your business earnings and expenses through an extra form attached to your personal income tax return—called a Schedule C—no need to file a separate return.
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 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).
Partnerships or LLCs with multiple members
Filing Deadline: March 15, 2021
Partnerships can take different forms, but for tax purposes, they all file small business taxes in the same way. 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 Form 1065, and then each individual member will get a Schedule K-1 showing his or her share of the profit/loss for the year. This is reported on each partner’s personal tax return. Again, no need to file a separate 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.
C corporations or LLCs that elect to be corporations
Filing Deadline: April 15, 2021 (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, 2021
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 From 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.
Any small business that pays contractors
Filing Deadline: Sent to recipients by February 1, 2021
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 February 1 deadline.
3. File your taxes online
In 2018, 92% of Americans who filed their taxes did it online. That’s because filing online:
- Doesn’t require you to fill out paper forms
- Gets your return to the IRS faster
- Lets you receive your refund electronically via direct deposit
- Is as secure or safer than sending your forms in the mail
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.
Here’s how each one works.
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 13 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 13 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 price package likely won’t cut it. They won’t include the advanced features you need, or the necessary forms, to file for your business.
The price on packages recommended for small business owners and contractors range from $54.95 (1040.com) to $94.99 (H&R Block). The package you choose will depend on which specific features you need, and which ones you don’t.
Also, keep in mind that this is for federal taxes only. Most online providers also offer state tax filing, sales tax, at an additional charge.
If you’re not sure which software provider to go with, Fit Small Business has a breakdown of the pros and cons of each.
Free File Fillable Forms
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 receiving a direct electronic funds transfer (EFT) from the IRS.
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 you check all the above, 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 and hire an accountant who can file your taxes for you.
If you’re late, apply for an extension
Again, the deadline for filing your small business tax return will depend on your business entity, but if you’re finding yourself behind the eight ball, don’t fret—you can always apply for an extension. While this gives you some extra breathing room for getting your paperwork filed, it’s important to note that you still have to pay your estimated taxes by the original deadline.
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.
You can pay estimated taxes online 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.