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As the tax filing season looms, here’s what you need to know about filing your business income tax return as soon as possible.
Keep in mind that state return deadlines vary, so this article focuses on federal tax return deadlines. Find out your state tax deadline by checking its Department of Revenue website.
When will the IRS accept returns?
Typically, tax returns start being accepted mid-to-late January. This year, the Internal Revenue Service announced they will begin accepting electronic returns from taxpayers as of Thursday, January 18th, 2024.
When are business taxes due?
April 15 is commonly known as Tax Day, the day that individuals, sole proprietors, and C corporations must file their taxes. In 2024, taxes are due on that day, as it falls on a Monday. When April 15 falls on a holiday or weekend, taxes are due on the following business day.
You must have your tax return filed electronically by midnight in your timezone on April 15. If you send your return to the IRS via snail mail, it is considered on time as long as it is postmarked by the due date. Note: your return will only be considered on time if you send the return in with the proper postage and the correct address. Tax returns sent back because of insufficient postage or an incorrect address are not considered filed on time by the IRS.
Business tax due dates are earlier for S corporations and partnerships. These business entities must have their returns filed by March 15, 2024. An S corporation files Form 1120-S while a partnership files Form 1065.
S corporations and partnerships do not pay taxes on their income per se. The income from these entities is passed through to the shareholders or partners and the tax is calculated on their individual tax returns.
Most C corporations are required to make tax payments throughout the year called “quarterly estimated tax payments.” For the 2023 tax year, the last estimated quarterly tax payment for businesses is due January 15, 2024. Estimated tax payments bump to the next business day if the due date falls on a holiday or weekend.
For the 2024 tax year, estimated tax payments for businesses operating on a calendar year are due on the following days:
If your business doesn’t operate on a calendar year, quarterly estimated tax payments are due by the 15th day of the 4th, 6th, 9th, and 12th months of that business’s year.
Suggested resource: 2022 U.S. Federal Tax Prep Calendar
Calendar year vs. fiscal year
Keep in mind that there is a difference between the calendar year and fiscal year filing dates. The IRS defines a calendar year as January 1 through December 31. It considers a fiscal year as 12 consecutive months ending on the last day of any month except December.
C corporations filing with a calendar year must file or extend their tax return by April 15. Those operating under a fiscal year system must file or extend the return on or before the 15th day of the fourth month after the close of your fiscal year.
Businesses can use either form of the tax year to determine annual income unless a certain type of tax year is required. Tax years are “adopted” by filing the initial tax form using that tax year. Once a particular tax year is chosen, you may need IRS approval in order to change it by filing IRS Form 1128.
Changing your tax year is fairly straightforward, but be sure you’ve followed IRS regulations to do so. According to the IRS, the following actions do not constitute adopting a tax year:
- Filing an application for an Employer Identification Number (EIN)
- Filing an application for a tax extension on an income tax return
- Paying estimated taxes for a tax year
Most businesses can adopt a calendar year, and there are situations in which adopting a calendar year is mandatory. These include:
- Lack of recordkeeping
- No annual accounting period
- The current tax year does not qualify as a fiscal year
- The IRS Code or income tax regulations require a calendar year
Is your business eligible for a refund?
While tax refunds are common when filing personal income taxes, most businesses are not eligible for a tax refund. This is true of businesses structured as sole proprietorships, partnerships, S corporations, or limited liability corporations (LLCs).
That’s because these entities are structured to pass income to the owners. The owners then report their portion of net taxable business income on their individual tax returns where it is then part of the tax computation. Small businesses structured this way do not pay taxes directly to the IRS, so the business per se cannot receive a refund. The owner might receive a refund based on their individual income tax return.
The exception is a business structured as a C corporation. Using IRS Form 1120, the U.S. Corporation Income Tax, a C corporation pays taxes directly to the IRS. If the C corporation pays more in estimated tax than is due on its final return, a refund may prove due.
The IRS treats an LLC either as a corporation, partnership, or as part of the owner’s tax return. Much depends on the number of members of an LLC or the elections made by the LLC. A domestic LLC with two or more members is considered a partnership for federal income tax purposes unless it decides to be treated as a C corporation by filing Form 8832.
Learn more: The Complete Guide to LLC Taxes
While only C corporations could potentially receive an income tax refund, there are situations in which other types of overpaid taxes could result in a refund no matter the business structure type.
For instance, overpayment of payroll taxes could occur if you overpaid this account. The same holds true for sales or excise taxes, although these overpayments are usually refunded by the state or municipality, not the federal government. Overpayment or underpayment of employment taxes requires the filing of an “amended return form.”
If your small business is eligible for a refund, it makes sense to file your income tax return as early as possible. Even if your business is not eligible for a refund, filing as a sole proprietor or partnership could mean that you might receive a personal tax refund.
What are the consequences of filing late?
What happens if you must file your tax return late or if you don’t file taxes at all? You could end up with an additional bill from the IRS. The one thing you must not do is ignore your tax situation. Not filing your return on time generally means any taxes due were not paid, and that can lead to serious penalties.
The IRS will levy both a late filing penalty and a late payment penalty. How much you will have to pay depends on how late your filing and payment are and how much tax you owe.
Without filing for an extension, missing the tax deadline incurs a penalty. Forms 1120 and 1040 have a penalty of 5% of the unpaid tax for each month the return is late. Forms 1120-S and 1065 have a penalty of $210 per shareholder or partner per month late up to 12 months. That amount can add up very quickly. Failure to pay the amount of tax owed on time results in a penalty of 0.5% of the amount due for each month it is unpaid.
There is some good news for filers of Form 1120 or 1040. These penalties max out at 25% of the total tax owed. In a worst-case scenario, you max out at the 5% penalty for missing the tax deadline after five months. That “failure to pay” penalty keeps going for quite some time if not resolved, with a total of 45 months, or close to four years.
Along with penalties, expect interest charges. That interest is applied every day that you are late. It is applied not only to your total tax due but to your accrued penalties as well. The interest rate is the federal short-term rate plus 3%.
What if your business is a new corporation and you didn’t have any taxable income? You must still file a tax return. New partnerships do not need to file a separate return.
How Bench can help
At Bench, our team of bookkeepers completes monthly books and prepares financials for tax filing. We help you maximize every available tax deduction, and provide a year-end financial package with everything needed to file your business taxes. If you’re worried about missing the deadline, we can even complete your tax filings for you.
If you have any additional questions, Bench customers also get access to unlimited on-demand tax consultations. Start your free trial today.
What are the benefits of getting started on your taxes early?
Tax season is stressful. One of the great benefits of getting started on your taxes early is stress minimization. A mental weight is lifted when you know your tax filing is completed ahead of the due date and you can focus on your business instead of tax obligations.
What if you owe tax? First, by getting started early, you know how much you owe the IRS and have time to put together a payment plan. You don’t actually have to pay the money owed until the due date. By completing your tax forms and filing them, you can figure out the best ways to come up with the funds rather than go into panic mode on April 14.
Your tax professional likely has more availability to help early filers as well. Getting an appointment with a tax professional is much easier in January or February than in March or April. In fact, getting ahead on your tax prep can save you money in the long run, too. You avoid IRS penalties and, by avoiding any last-minute rush fees, you will often pay less for tax preparation.
Tax extensions
Sometimes a business or individual cannot file by the due date and must file for a tax extension. Tax extensions are due by April 15 for C corporations and sole proprietors filing Schedule C as part of their personal tax return. For businesses that file as S corporations or partnerships, the tax extension due date is March 15, 2024.
If your business has filed successfully for a tax extension, sole proprietors and C corporations must file income tax returns by October 15, 2024. S corporations and partnerships will have until September 16, 2024 to file their return after successfully filing for a tax extension.
W-2 filing deadline
Businesses with employees must fill out and file two W-2 forms, the Wage and Tax Statement, for each employee. These forms must be provided to both the employee and filed with the IRS. The deadline for submitting these forms is January 31, 2024.
Form 1099 deadline
Businesses working with independent contractors must file Form 1099-NEC for non-employee compensation. Before 2020, businesses used the form 1099-MISC for miscellaneous income for such reporting.
Prior to 2020, the 1099-NEC had not been used since the 1980s. Now, the 1099-NEC is used for reporting all payments to individuals performing work for the company who are not on the payroll. The 1099-MISC has not disappeared but is now used solely for various types of miscellaneous income, such as rents, legal settlements, or prizes.
The deadline for providing this form to independent contractors and the IRS is January 31, 2024. Part A of 1099-NEC is filed with the IRS, while Part B is sent to the contractor.
If you must provide a 1099-MISC form, the due date for filing a paper return is February 28, 2024. If you e-file, the due date is March 31, 2024. The copy you provide to the recipient, Part B, must be provided by January 31, 2024. Again, Part A of 1099-MISC is filed with the IRS while Part B is sent to the recipient.
Advantages of early filing
There are many advantages to filing your business taxes early and virtually no downside. Filing your business income tax return early eliminates the need to file for a tax extension. While reasons for requesting an extension vary by the enterprise, for many small businesses the need is driven by simply not getting tax documents gathered on time.
No business wants to make mistakes when filing its tax return. Rushing to meet the tax deadline makes it more likely that errors, perhaps costly ones, will occur. Getting started early means no hurrying and less likelihood of mistakes. Just make sure your bookkeeping is up-to-date and you’ll be prepared to have your business taxes filed as soon as possible!
