Tax Forms for Small Business Owners
As a small business owner, you are responsible for paying taxes on all income generated by your business. Even if your business does not generate income during the year, it is necessary to report the lack of income to the Internal Revenue Service. The exact documents needed to file your business taxes vary, depending upon the structure of your business.
Without properly managing your tax payments to the local, state, and the federal government could result in massive fines, persistent bank liens, or even the government stepping in to shut you down.
Whether you’re starting a new business at the turn of the new year or looking forward to your first quarterly tax payment, this moment is critical for a small business owner. Depending on how your business is organized, you may have different tax requirements from other companies. Whether you’re an LLC, a partnership or an S corporation, you’ll always be paying taxes as you go, reporting income as you earn it throughout the tax year.
While there are countless experts and professionals to help you navigate your business’s fledgling months, we collected some tips and federal forms you can address right now to make sure your first or next quarterly tax payment goes smoothly.
Business Tax Forms for Sole Proprietorships
The federal government doesn’t consider sole proprietorships to be individual legal entities to be taxed. Sole proprietors report any business earnings on their individual tax returns — that’s the only financial reporting they must do.
Most sole proprietors file their business tax obligations as part of their individual 1040 tax return by using the additional two-page form Schedule C, Profit or Loss from Business
Form 1040, U.S. Individual Tax Return
This is used to file your individual income tax return. Business owners will need to complete additional Form 1040 ‘schedules’ to itemize deductions, expenses and claim tax credits.
Schedule A to Form 1040, Itemized Deductions
Some personal expenses are “deductible” from your gross income to potentially lower the amount of taxes you have to pay.
If your total deductible personal expenses are greater than the standard deduction amount set by the IRS, you can itemize them using Schedule A.
The schedule has seven categories of expenses, including
- Charitable Donations
- Medical and dental expenses
- Mortgage Interest
- Interest paid
- Taxes paid
- Losses due to casualty and theft
- Job expenses
Strict rules apply for calculating and claiming these deductions, however. In some cases, you might not be able to deduct the full amounts.
You also don’t have to complete every line of the schedule. If you don’t have expenses in a certain category, simply skip over it. Once you’re finished, your total deduction amount is then added to Form 1040.
If you had over $1,500 in taxable interest or ordinary dividends from your bank accounts and investments, you might have to file Schedule B to report the amounts.
Additionally, if you have any foreign bank or investment accounts or receive distributions from certain foreign trusts, you must report that information on this schedule. Once completed, these totals also transfer over to Form 1040.
Schedule C to Form 1040, Profit or Loss From Business
(Sole Proprietorship Or Single-Member LLC)
If you are a sole proprietorship, or single-member LLC you will file a Schedule C to report the gross profit or loss from your business.
Categories of expenses include costs like:
- Meals and Entertainment
- Office Supplies
- Other business-related items.
The self-employment tax (SE tax) is a Social Security and Medicare tax that contributes to your coverage under the social security system. Social Security coverage provides you with retirement, disability, survivor, and Medicare benefits.
- If you make over $400, you must pay a Self-Employment Tax
- For Sole Proprietorship and LLC Members
- Taxed on your profit, for social security and Medicare taxes.
- Roughly 15%
A simplified explanation of how self-employment tax is calculated:
- Enter your business net income
- Multiply this income by 92.35% (0.9235)
- Multiply this number by 15.3% (the self-employment tax rate) to get your self-employment tax liability amount.
You can deduct one-half of the self-employment tax to reduce your adjusted gross income for the year.
A tax software program or tax preparer can calculate this tax for you, or you can run the calculation yourself using Schedule SE.
Form 1099-MISC for Miscellaneous Income
This is for the self-employed, freelancers, and independent contractors. You Must report earnings received from your clients, sponsors, and financial institutions.
This form replaces a Form W-2 you receive working for a traditional employer.
Form 1099-MISC is also a catch-all for other types of income, such as prizes, awards, and fishing boat proceeds.
Business Tax Forms for LLCs
Determining which IRS business forms you’re responsible for as a limited liability company, or LLC, is a little more complicated.
For tax purposes, the IRS can consider an LLC as a:
Considered part of the LLC owner’s personal tax return. In this case for your LLC, you, as a single owner, will report the income and expenses of your LLC using Form 1040 Schedule C or E, along with your personal tax return.
Regarded as a partnership
If your LLC has at least two members, it’s considered a partnership, and you’ll have to file Form 1065, as well as a Schedule K-1 for each partner.
LLCs filing partnership returns generally pay self-employment tax on their share of partnership earnings, which means adding Form 1040-ES or Form 1040-SE to your individual return.
This IRS business form is used to calculate and pay your estimated taxes. Estimated tax is the method used to pay tax on income that is not subject to withholding, in this case, due to self-employment. Because you have no employer withholding taxes for you, you’re responsible for paying estimated taxes on a quarterly basis.
Freelancers, solopreneurs, partners, and S corporation shareholders are expected to make estimated tax payments if they anticipate owing $1,000 or more when they file their return. You pay estimated taxes quarterly, and determining just how much you must pay every quarter can be confusing for new business owners. It’s important to get your estimation right as you can receive a penalty for missing or underpaying these taxes. Visit the IRS’s guide on estimated taxes to determine if this tax applies to your business and to help calculate how much you owe.
Schedule SE is used to determine how much you owe in self-employment taxes. Self-employment taxes are taxes you pay as your portion of Social Security and Medicare taxes since you have no employer removing them from your pay on a regular basis. Schedule SE allows you to calculate your self-employment tax liability, which you then record on your individual Form 1040.
Regarded as a corporation
If your LLC is regarded as a corporation, you’ll complete Form 1120 or Form 1120-S.
If you want to change how your LLC is classified for federal taxes, you can complete
Form 8832. This form allows you to specify how you’d like your LLC to be classified with the IRS, as a C corporation, partnership or sole proprietorship.
Business Tax Forms for Partnerships
If your business is a partnership, you’ll be responsible for paying taxes for the partnership as a whole, as well as the individuals that make up the partnership.
As a partnership, you’ll have to complete Form 1065, which is an annual information return to report the income, gains, losses, deductions and credits for your business.
To determine each partner’s share of the business income and losses, you’ll each complete a Schedule K-1. You’ll then use the calculations from Schedule K-1 to complete Form 1065.
As a partnership, however, your business does not pay income tax. Instead, this tax burden is passed on to the individual partners.
Partnership members are usually still responsible for many of the personal tax forms discussed previously, including Form 1040, Form 1040-ES and Form 1040-SE.
Depending on your business, you might also have to complete Form 1040 Schedule E, which reports supplemental income and loss from your partnership.
IRS Business Forms for Corporations
For corporations, the specific IRS small-business forms that you’ll need to complete for tax purposes will ultimately depend on whether you’re an S corporation or C corporation.
If you’re a C corporation, your business is legally separated from you, and therefore, you’ll pay income tax for your business using Form 1120.
Form 1120 is an annual report of income, gains, losses, deductions, and credits that determines the income tax liability of a corporation.
As a shareholder of your corporation, you’re taxed on your personal tax return, Form 1040, when profits are distributed as dividends.
If you’re a shareholder that participates in the business’s operations, you’re considered an employee. Only the salary you receive as an employee, then, is subject to self-employment taxes.
For an S corporation, on the other hand, you’ll fill out:
- Form 1120S: Form 1120S is an annual report of the income, gains, losses, deductions and credits for an S corporation. Just as Form 1040 Schedule-C reports your business’s income or loss in relation to your personal tax return, Form 1120S affects your personal tax return. However, unlike Schedule C, it is filed with the IRS separately from your personal return.
- Form 1120S Schedule K-1: The Schedule K-1 for Form 1120S should be completed by all shareholders of your S corp business. Similarly to Schedule K-1 for partnerships, this form calculates each shareholder’s responsibility for the profit or loss of the business. Form 1120S Schedule K-1 does not need to be filed to the IRS, but instead is used by the shareholders to complete their individual tax returns.
If you’re an S corporation shareholder, you may be responsible for Form 1040 Schedule E as well as Form 1040-ES as part of your personal tax return.
Finally, Form 1120-W calculates the estimated tax that corporations need to pay on a quarterly basis. Estimated taxes can apply to both C corps and S corps and their 1120 tax forms depending on the specific circumstances.
Additional Business Tax Forms
There are many other forms that may be necessary depending on your circumstances. Some of these forms include:
- Form 8829 is used to determine if you can claim a tax deduction for any of your home business expenses.
- Form 8283 is used to report and claim a deduction on noncash charitable gifts that your business has made of more than $500.
- Form 8825 is used to report real estate income and expenses.
- Form 1040 Schedule F is for Farm owners.
- Form 1040 Schedule EC is to make estimated tax payments throughout the year.
- Form 720 is used to report and pay your business’s federal excise tax on specific goods like gasoline, coal, and tires.
- Form 4562 is used to report the depreciation or amortization of property, vehicles, and other costs to your business.
- Form 7004 is used to request a 6-month extension to waive late fees on partnership and corporation tax returns.
- Form 4868 is used to request a 6-month extension of time to waive late fees on Personal, Sole proprietor, and single-member LLCs.
- Form 1040 Schedule A is for itemized deductions of Personal separate from business.
The sheer amount of forms, combined with the fact that forms are created, changed, and combined every year, is why professional tax experts or accountants are always recommended.
Doing research on your own business industry will help you come across any extra forms that may help.
Business Operation Tax Forms
Although the bulk of the IRS small-business forms that you’ll need to complete will specifically relate to business and personal taxes, there are some other IRS forms that you may need to file that more generally apply to your business operations. Here are some of the most common forms:
- Form 2553: Similar to Form 8832, Form 2253 is used by a corporation or other eligible entity to elect to be treated as an S corporation for taxes.
- Form 2848: You use this form to authorize an individual, like your certified public accountant or business lawyer, to represent you before the IRS.
- Form 4797: This form is used most generally to report the sale or exchange of business property. This form is also used to report other dispositions of assets and gains or losses from certain property dispositions.
- Form 8822-B: Form 8822-B is used to notify the IRS if you’ve changed your business mailing address, business location, or responsible party.
Business Tax Forms for Managing Employees
Regardless of your entity type, if your business has employees, there will be a number of IRS business forms that you may need to complete as an employer. These forms may report tax and income information for your employees, as well as employee benefits to the IRS:
- Form W-2 and W-3: Form W-2 is an annual form that must be completed and filed with the IRS, as well as given to each employee. This form reports the employee’s wages and tax withholdings for the tax year. Form W-3 is used to transmit employee W-2s to the Social Security Administration.
If you have W-2 employees, you must file and pay certain federal taxes that include social security and Medicare taxes, federal income tax withholdings, and federal unemployment tax. Furthermore, each state requires specific state employment taxes, such as unemployment insurance and workers’ compensation insurance, so make sure you get all the information you need at your state’s department of taxation.
- 1099-MISC Form: Similar to a W-2, the 1099-MISC Form is an annual form that is filed with the IRS and given to your contractors to report wages you’ve paid them and any tax you’ve withheld for them during the tax year.
- Form 1099-R: Another version of the 1099 form, Form 1099-R is used to report any distributions you’ve made for pensions, annuities, retirement or profit-sharing plans, IRAs, insurance contracts, etc. in the given tax year. Form 1099-R must be filed for each person whom you’ve made distributions for, as well as given to each of those individuals. If you maintained any IRAs for your employees, you’ll also have to complete Form 5498 for each Form 1099-R.
- Form 940: IRS Form 940 is an annual report of your business’s federal unemployment tax obligations detailing how much was owed the previous year, how much has been paid, and any outstanding balance.
- Form 941: Form 941 must be filed on a quarterly basis to report income, Social Security, and Medicare taxes that you’ve withheld from your employee paychecks. You also use IRS Form 941 to calculate your Social Security and Medicare tax responsibility as an employer.
- Form 943: Form 943 reports any wages and tax withholding that you made within the year specifically for agricultural employees.
- Form 944: If your business has a lower employment tax liability — $1,000 or less — you may be eligible to complete Form 944 instead of Form 941. Although Form 944 also reports the taxes that you’ve withheld from employee paychecks, it can be filed annually instead of quarterly.
- Forms 3921 and 3922: Both Form 3921 and Form 3922 are forms that corporations file in relation to the transfer of stock to an employee within the given year.
In addition to those listed here, there might be additional IRS forms for your business to complete in regards to employee benefits — including employee pension accounts, stock ownership plans, and retirement trust accounts — depending on the benefits you offer.
Business Tax Mastery Course
We provide tax regulation information, not official advice. As stated before, the sheer amount of forms, combined with the fact that forms are created, changed, and combined every year, is why professional tax experts or accountants are always recommended.
Be sure to check out our Business Tax Mastery Course which will show you how to turn your business taxes into a business tool.