Doing taxes as a small business owner can be an overwhelming experience—dozens of numbered forms, complicated terminology, and handfuls of important dates to remember.
In this article, we translate even the most convoluted government tax speak into easy-to-understand information that will keep your business running smoothly all year long.
Small Business Tax Forms
There are a number of forms that help small businesses file taxes and make deductions. Knowledge of these few will go a long way towards helping you stay organized and file on time.
This form is used to report your annual Federal Unemployment Tax Act (FUTA) tax. When employees are let go for reasons beyond their control, they receive unemployment insurance. As an employer, you pay into this program and the amount you contribute is determined by Form 940. You only need to submit Form 940 once a year, but your FUTA tax payments need to be paid quarterly: April 30, July 31, Oct. 31 and January 3.
Form 941/Schedule B
If you have employees, you’ll use a 941 form to report how much federal income tax and other payroll taxes you have withheld from their paychecks during each business quarter. You only need to fill out one form regardless of how many employees you have, but you have to submit it to the IRS each quarter.
This is the form you will fill out and send to your independent contractors, reporting how much you paid them for their services in a given year. 1099 forms must be issued to independent contractors by January 31, with copies submitted to the IRS no later than Feb 28 (if filing on paper) or March 31 (if filing electronically).
You’ll fill out a W-2 for for each of your employees, reporting their annual wages as well as the amount of taxes withheld from their paychecks. As a small business owner, you’re responsible for issuing W-2 forms to your employees no later than January 31 and also submitting copies of these forms to the IRS.
While you’re responsible for filling out a W-2, it’s your employee’s responsibility to complete a W-4 form to tell you how much money to withhold from your paycheck for federal taxes. Your employees may claim allowances for spouses or dependents on the W-4 form and may instruct you to withhold more taxes from their pay if they work several jobs or their spouse earns income, too.
Form 1040/Schedule C
If your business is a sole proprietorship, you’ll use a Schedule C (also known as Form 1040) to report how much money you made (or lost) in your business each year. Think of it like this: you use a 1099 form to report how much each of your independent contractors made and a W-2 form to report how much each of your employees made—the Schedule C form exists so that you can reports how much your business made, too.
If your business is a regular corporation, your income or losses will be reported using Form 1120.
If you’re self-employed, you’ll need to fill out and submit Schedule SE, which is the form used to calculate the Social Security and Medicare tax (SE tax) that needs to be paid by self-employed individuals.
If you’re like many business owners, you may end up working from home at least part of the time. Form 8829 helps you deduct some of your living costs like rent, insurance, and utilities as business expenses. The IRS is very specific about what costs can be deducted and what constitutes a workspace, however, so make sure to do your research before claiming deductions.
If you’re a new company, you will need to file a SS-4 form to apply for an employer identification number (EIN). An EIN is a nine-digit number that the government assigns to employers, sole proprietors, corporations, partnerships, etc. for tax filing and reporting purposes. It’s kind of like a unique identification number for your business, and the SS-4 form is how you get your hands on one.
Business Tax Terms to Get Familiar With
Feel like you need to learn an entirely new language just to do your taxes? We can help by translating a few of the common tax terms you’re likely to encounter.
When you’re an employee, you have taxes withheld from each paycheck, but as a business owner you’re the one responsible for calculating and paying taxes for your business. This amount is called estimated tax since it can be difficult to predict revenue with 100% accuracy. You can find out more about estimated tax, including how to calculate the right amount to pay, in our Guide to Understanding Quarterly Taxes.
This term actually refers to two things; the tax deducted from your employee’s wages, and the taxes paid to the government by you, the employer, based on those wages. Payroll tax is usually calculated as a percentage of total employee salaries and is used by the government to pay for things like income tax, MediCare and Social Security.
Deductions are everyone’s favorite thing about tax season and it’s not hard to see why. A tax deduction lowers your taxable income, which means it also lowers the amount of tax you have to pay. That’s definitely something to smile about, especially as a small business owner, because you can often deduct a portion of your rent if you have a home office, vehicle expenses if you use your car for work purposes, and even office supplies. A great reason to keep those receipts!
An exemption also reduces your taxable income but it differs from a deduction in that it refers to a specific amount pre-set by the government, rather than an amount resulting from expenses. Common exemptions are the dependency exemption, for your children or spouse.
This term refers to the loss of an item’s value over the course of its life. For example, the photocopier you bought three years ago is currently worth less than its original purchase price due to its age, daily wear and tear, and possible obsolescence. Depreciation expenses allow your business to write off the loss of that value.
Whereas both deductions and exemptions reduce your taxes by reducing the amount of taxable income, tax credits work by skipping the middleman altogether and directly reducing the amount of tax due.
When you start a business, there are several different ways to structure it: as a sole proprietorship, a C corporation, an S corporation, or a limited liability company (LLC). Each structure offers different advantages and it’s important to choose the structure which best suits the needs of your business. Wondering how to choose? Our guide to business structures is a fantastic resource to help explain the differences between these structures and help you decide which one is right for you.
Filing for an extension means that the IRS will grant you an additional six months to complete and file your business taxes for a given year (see, they’re not all bad!). In order to be granted an extension, however, you must submit an extension application (Form 7004) before your original tax due date.
This term makes many people anxious, but there’s no need to panic. Audits simply happen when the IRS wants to double check your records and ensure that the tax return was prepared properly. When your records are in order and you have all supporting documentation, audits are a breeze (all the more reason to use great accounting software like QuickBooks!). If there are discrepancies, the auditor will recommend a reassessment and you may have more tax owing.
Accrual vs Cash Method
These terms refer to two different types of accounting. The accrual method is more common and it records income and expenses when they’re earned, whereas the cash method only inputs these amounts when they money is received or paid. So with the accrual method, you’d record income when you invoice a client, whereas with the cash method you’d only record it when the client has actually paid.
Important Tax Dates for Your Calendar
It’s not just your mom’s birthday you need to circle on the calendar anymore, small businesses owners have many dates to remember. Here are the can’t-miss-it tax dates that every small business owner should know:
February 1, 2017: This is the deadline to mail out W-2 forms to your employees and 1099s to your contractors, and submit copies of each to the IRS.
February 28, 2017: Deadline to mail 1099 forms to the IRS.
March 15, 2017: The Deadline to file corporate tax returns, namely Forms 1120, 1120S, and 1065. You’ll use a Form 1120 if you’re a C-corporation (where shareholders are taxed separately from the business), a Form 1120S if you’re an S-corporation (where shareholders are taxed for profits) and a Form 1065 if your business is a partnership.
March 31, 2017: Deadline to file 1099s online.
April 18, 2017: Everyone’s favorite – Tax Day! This is the deadline to file your personal tax return. For self-employed individuals, use Forms 1040, 1040A, or 1040EZ. It’s also the last day you are eligible to contribute to a traditional IRA, Roth IRA, Health Savings Account, SEP-IRA, or solo 401(k) for the 2016 tax year.
April 30, 2017: Deadline to pay FUTA and file Form 941 for first quarter.
July 31, 2017: Deadline to pay FUTA and file Form 941 for second quarter.
October 31, 2017: Deadline to pay FUTA and file Form 941 for third quarter.
January 3, 2018: Deadline to pay FUTA and file Form 941 for fourth quarter.
Check out our 2017 small business tax calendar for a complete list of important deadlines.