A Guide for First Time Business Owner Filing Taxes

As a first-time business owner, filing taxes can be overwhelming, but don't worry, it's a necessary step to stay on top of your finances. You'll need to file a tax return for your business, which is usually due on April 15th.

Businesses with employees must file Form 941, Employer's Quarterly Federal Tax Return, by the end of the month after the quarter ends. This is to report payroll taxes withheld from employee wages and pay employer taxes.

You'll also need to file Form 1099-MISC, Miscellaneous Income, if you paid freelancers or independent contractors more than $600 in a calendar year. This will report the payments you made to them.

Keep accurate records of your business income and expenses throughout the year, as this will make tax time much easier.

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As a first-time business owner, you'll want to make sure you have all your business records in order before filing your taxes. Gather your last year's tax returns, your Employer Identification Number, and your SSN.

It's also essential to track your business expenses. For every expense, you'll need to note the amount, date, location, payment method, and reason for the expense. For meals and entertainment expenses, be sure to include who was involved, such as employees and clients.

Here's a quick checklist of what you'll need for each expense:

Tracking your expenses is a crucial part of preparing for taxes. You'll need to have detailed records of every business expense to ensure you're taking advantage of all the deductions you're eligible for.

To start, gather receipts and expenses, and make sure to note the date each purchase was made. This information will be essential when it's time to file your taxes.

You'll also need to keep track of the amount spent, where the purchase was made, and what form of payment you used. This might seem like a lot of information, but it's worth it in the long run.

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For meals and entertainment expenses, make a note of who was involved, including both employees and clients present. This will help you stay organized and ensure you're following the IRS guidelines.

Here are the key pieces of information you'll need to track for every expense:

As you prepare for tax season, it's essential to set aside money for bills, especially if you're a business owner. You'll need to make estimated quarterly tax payments if you expect to owe more than $1,000 in taxes in a calendar year.

For businesses with a consistent stream of income, you can set up automatic bank transfers to regularly pull funds from your primary bank account into a secondary savings account. This way, you'll ensure you have enough money to make those payments in April, June, September, and January.

Saving about 25-30% of your net business income will make sure you've got the money required to pay your federal income taxes. This amount can vary depending on your business structure and tax liability.

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You can use our free quarterly tax calculator to get an estimated of your tax payment amounts. This will help you plan and set aside the right amount.

Here are the estimated quarterly payment dates:

It's also a good idea to keep this money in a separate bank account from your primary business account to avoid dipping into it for other expenses.

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As a first-time business owner, choosing the right business structure is crucial for tax purposes. LLCs are a popular choice, especially for single-member businesses.

LLCs with one member are treated as a "disregarded entity" for tax purposes, meaning you may be taxed as a sole proprietor. You can elect to file taxes as a corporation if you prefer, but this comes with double taxation.

If you have a single-member LLC, you'll follow the same tax rules as a sole proprietor and fill out a Schedule C on your personal tax return. For LLCs with two or more members, you'll file more like a partnership, using Form 1065 and distributing profits and losses to each member.

Choosing to file taxes as a corporation is a big decision, and it's not easily reversible. You'll need to stick with your chosen tax status for at least five years before you can change it again.

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A Limited Liability Corporation, or LLC, is a great business structure for many entrepreneurs. It offers personal liability protection, tax benefits, and flexibility in management.

If you're the only member of your LLC, filing taxes is a breeze. You simply fill out a Schedule C when you file your annual personal tax return, just like a sole proprietor.

LLCs with two members or more are a bit more complicated. You'll file Form 1065, and each individual member will get a Schedule K-Tax Form and their share of the profits/losses of the business for the year.

This means that each partner will report their share of the profits/losses on their personal tax return. It's not too different from how partnerships file their taxes.

You can choose to file taxes as a corporation, but this is rarely done due to the double taxation that comes with it. If you elect to file as a corporation, you'll need to file IRS Form 8832 to confirm your tax preferences.

Changing your tax classification can be a long-term commitment, so it's essential to consider your options carefully. Under most circumstances, you'll need to adhere to the tax status you choose for five years before you can change it again.

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A partnership is a business structure where multiple individuals own and operate a company together. It's a straightforward way to share the responsibilities and profits of a business.

To file taxes as a partnership, you'll need to file Form 1065, which provides an overview of the company's profits and losses for the year. This form is purely for informational purposes and doesn't require partners to pay taxes on the company's income.

Each partner will receive a Schedule K-1, which shows their individual share of the profits or losses from the business. This is where partners actually report and pay taxes on their shares of income from the business.

The partnership return is used to verify and validate the information on each partner's individual income tax return. This ensures that the income is accurately reported and taxes are paid on the correct amount.

In a multi-member LLC that's treated as a partnership, earnings are passed through to partners by default. This means the LLC must file Form 1065 as an annual partnership return, and each partner will receive a Schedule K-1 showing their share of the profits or losses.

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An S Corporation is a great business structure for many small business owners.

Filing taxes as an S Corporation is a bit more complicated than other business structures, but it's worth it for the tax benefits.

You'll need to file a corporate tax return using Form 1120S, and each shareholder will receive a Schedule K-1 to report their share of profit or loss on their personal taxes.

As an S Corporation, you'll also need to pay estimated tax payments for certain S-corporation taxes, which can be a bit of a hassle.

To file an S Corporation, you'll use IRS Form 1120S, which reports the S Corporation's income, expenses, and losses.

You'll also need to file IRS Form K-1 for each of your corporation's shareholders, which shows each shareholder's income, deductions, and credits related to their share of the corporation.

It's worth noting that most small business owners choose to have a CPA handle these forms, as they can be complex.

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An Employer Identification Number (EIN) is your business's federal tax ID number. Most businesses require an EIN to file business taxes, but not all.

You need to apply for an EIN if you have employees, as this will require you to file Employment tax returns. This is a common reason why businesses need an EIN.

If your business is a corporation or partnership, you'll also need to apply for an EIN. This is because these types of businesses require more formal tax structures.

You'll also need an EIN if you have a Keogh (tax-deferred pension) plan, or if you withhold taxes on income paid to a nonresident alien. These situations require special tax handling.

Here are some specific situations where you'll need to apply for an EIN:

If you do require an EIN, you can apply for one on the IRS's website.

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Managing payroll is a crucial aspect of running a business. As an employer, you're responsible for collecting and remitting various taxes, including FUTA, FICA, and state and local taxes.

FUTA, or Federal Unemployment Tax, is a 0.6% tax that's effectively used to fund unemployment benefits. You can calculate how much federal payroll tax to withhold using IRS Publication 15.

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FICA, on the other hand, is a 7.5% tax that's divided between social security and Medicare. This tax is a significant expense for businesses, but it's essential for employees' benefits.

State and local taxes vary depending on where your business is located. Each state has its own tax rates and regulations, so it's essential to research and comply with the specific laws in your area.

Here are the different types of payroll taxes you'll need to manage:

As a first-time business owner, it's essential to understand your tax obligations. You'll likely need to file state and local taxes in your first year, even if you're not making a profit.

Don't worry if you're not making a profit in your first year - it's not unusual for new businesses to lose money due to initial investments. The IRS won't be alarmed to see a loss due to startup costs.

You'll need to know the deadlines for filing your business taxes to avoid fines and penalties. Familiarize yourself with the most important business tax due dates for the upcoming year.

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As an employer, you're likely familiar with the idea of federal unemployment taxes, but do you know the specifics? The Employer's Annual Federal Unemployment (FUTA) Tax Return is form 940.

You'll need to file this form annually to report your FUTA tax payments. This tax is used to fund unemployment benefits for workers who lose their jobs through no fault of their own.

FUTA tax rates vary depending on the state you're in, but most employers pay a rate of 6% on the first $7,000 of each employee's wages. This rate can be reduced if you've paid state unemployment taxes in full for the year.

Form 940 is due on January 31st of each year, and you'll need to keep records of your FUTA tax payments for at least four years.

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Filing business taxes on time is crucial to avoid fines and penalties. Delinquent taxes can lead to back taxes, making it essential to know the deadlines.

April 15 is the initial deadline for filing business taxes for single-member, multiple-member, C corporation, and S corporation LLCs. This date may be extended to April 18 if Emancipation Day falls on the 15th.

You can file an extension for taxes, which is valid for six months. To receive the extension, you need to have filed Form 4868 by April 18.

Filing an extension requires submitting an estimated payment for the remaining amount due on the initial filing date. You'll need to make an additional payment for the difference or receive a refund if you paid too much when you file the return.

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You'll likely need to file state and local taxes in your first year, even if your business lost money due to initial investments.

The IRS won't be alarmed to see a loss, and you may not need to pay any taxes, which is a relief for new businesses.

Filing taxes shows that you're carefully managing your finances and making an effort to comply with laws that govern your business, which is what state and local governments care about most.

Sales tax is a state tax that small businesses are required to collect from customers and remit to the government.

Even ecommerce stores without a physical presence in any state still have to pay sales tax.

You might have to file a sales tax return monthly, quarterly, or annually, depending on the state.

Sales tax obligations can be complex, but understanding the basics can help you stay on track.

As a small business owner, it's essential to know that you're responsible for collecting sales tax, even if you're an online store.