Small business tax preparation checklist 2023: 6 steps business owners should know

As a small business owner, you’ve got plenty on your plate. From hiring the right employees to overseeing the daily operations of your company, it can be challenging to find the time to manage your books.

However, staying prepared year-round can help make filing easier when tax season comes around. We’ve compiled the essential steps you need to follow to streamline your small business tax prep and filing process.

This small business tax preparation checklist breaks down the six basics of filing small business taxes and includes a downloadable checklist to stay on top of your small business tax prep needs—including what forms to file and documentation to gather.

• 1. Understand the types of business taxes
• 2. Know what tax forms you need to file
• 3. Create a tax filing calendar
• 4. Gather the needed business tax return documents
• 5. Make note of common tax deductions and credits
• 6. Request a filing extension if needed

1. Understand the types of business taxes

All businesses are required to pay certain taxes to the IRS and state tax authorities. As a small business owner, it’s your responsibility to ensure that you meet your federal and state tax obligations. Whether you run a sole proprietorship, partnership, S corporation, or C corporation, these are the five main types of taxes your business may be responsible for.

Income tax 

Income taxes are based on income generated by a business and are paid on both a federal and state level. Depending on the type of entity your business is registered as—also known as your business structure—your small business tax obligations vary.

C corporations are subject to double taxation, once at the corporate level and once at the individual shareholder level. For C corporations, taxes are paid based on the net income of the business at the entity level. Additionally, if there are “dividends” paid out to the shareholders of the C Corporation, the dividends would be taxed on the individual’s personal income tax return. 

The current federal income tax rate is 21% for C corporations.

On the other hand, all other types of business entities such as sole proprietorships, partnerships, and S corporations pay income taxes on an individual level. While sole proprietorships are reported straight on the individual’s 1040, Partnerships and S Corporations file a separate tax return to report the income/loss activity of the business. 

These entities are known as “flow-through” entities because the income is first reported at the entity level and then “flows-through” to the individual’s tax return on Schedule K-1. 

Unlike the C Corporation which pays taxes at the entity level, the Partnership and S Corporation pays no federal taxes. Business owners of these entities are responsible for reporting business income and expenses on their individual tax returns. Income taxes are then paid based on the tax bracket you fall into.

A business’ state income tax varies from state to state and potentially city to city. Depending on where your business operates and where you create economic nexus, you may have filing requirements in different state and local jurisdictions. The rules for economic nexus are complex, and it is best to consult with your tax adviser if those rules apply to you.

Estimated taxes

Estimated taxes are the payments businesses are required to make on a quarterly basis. For C corporations, estimated taxes must be paid if you expect to owe more than $500 in taxes. For all other business structures, you are required to pay taxes if it’s likely you’ll owe more than $500 on your individual tax return.

The estimated tax deadlines for 2023 are as follows:

• January 17, 2023: 2022 fourth quarter estimated taxes due 
• April 18, 2023: 2023 first quarter estimated taxes due   
• June 15, 2023: 2023 second quarter estimated taxes due 
• September 15, 2023: 2023 third quarter estimated taxes due 
• January 16, 2024: 2023 4th quarter estimated taxes due 

If during any year the due date falls on a holiday or weekend, taxes will be due the following business day. 

Self-employment taxes 

As a sole proprietor or partner who materially participates in your own business, you are subject to the employee and employer portion of Social Security taxes and Medicare Taxes. . If you personally earned more than $400 from business activities, it should be reported as self-employed income and paid at the self-employment tax rate. 

The current self-employment tax rate in 2023 is 15.3% and is divided as follows: 

• 12.4%: Social Security tax
• 2.9%:  Medicare tax 

Employment taxes 

If your small business has employees, you have certain employment tax responsibilities, also known as payroll taxes. Examples of employment taxes include:

• Social Security and Medicare tax: Employers are responsible for deducting Social Security and Medicare taxes from employee paychecks, as well as paying a portion of these taxes. The Social Security tax rate is 12.4%—6.2% is paid from the employee’s wages and 6.2% is paid by your business. The Medicare tax rate is currently 2.9%—1.45% is paid out of the employee’s wages and the employer pays the other half.
• Federal and state income tax withholding: As a business owner, you are responsible for withholding income taxes on behalf of your employees. The amount withheld will vary per employee, as it is based on the W-4 allowances they claimed.
• Federal unemployment tax: The current federal unemployment tax rate (FUTA) is 6% on the first $7,000 of income for each employee. You may also be responsible for paying state unemployment taxes, which may differ from the federal rate.

Excise tax 

Excise taxes are additional taxes you may have to pay on specific goods or services. If your business performs any of the following, you may have to pay excise taxes:

• Environmental taxes
• Communication and air transportation taxes
• Fuel tax
• Retail tax (truck, trailer, semitrailer chassis and bodies, and tractor)
• Ship passenger tax (transportation by water)
• Manufacturers taxes (coal)

For a full list of which goods and services excise taxes may apply, refer to the excise tax overview page on the IRS website.

2. Know what business tax forms you need to file 

There isn’t a one-size-fits-all business tax form. Depending on your business structure, you may need specific tax forms—like Form 1099-MISC or Form 1120—to report profits, losses, deductions, and credits to the IRS. Some of the most commonly used IRS forms used to report small business taxes include:

• Schedule C: Return with Form 1040 to report income as a sole proprietor.
• Schedule K-1: Use to report income for pass-through entities. You will need to complete Schedule K-1 as an owner of an S corporation or partnership 
• 1099-Misc: Use to report rental income paid to landlords or gross proceeds paid to attorneys.
• 1099-NEC: Use to report non-employee compensation.  
• Form 1120: Use to report income for a C corporation.
• Form 1120-S: Use to report income for an S corporation. Form 1120-S is filed separately from your personal income tax return.
• Form 1065: Use the information return as an owner of a partnership. Form 1065 is filed separately from your personal income tax return.
• Form 720: Use for reporting excise taxes for your business. 

If you have questions about which forms to file or how to fill them out, a dedicated tax professional can help you to ensure you file correctly and on time.

3. Create a tax filing calendar

With everything else on your plate as a small business owner, it’s understandable that business tax deadlines and due dates might not be top of mind. However, it’s important that you keep track of when tax payments are due and when you need to file taxes. Unfortunately, the IRS doesn’t take tardiness or failure to pay lightly.

To help you avoid fines and serious penalties that can interfere with your business’s cash flow, the best thing to do is to create a tax calendar. In 2023, your tax calendar should include these important small business tax dates:

• January 31, 2023: Deadline to send W-2s to your employees and 1099s to independent contractors. This is also the final day to submit copies of these tax documents to the IRS.
• February 28, 2023: Deadline for companies to file their information return using a 1099 or 1096
• March 15, 2023: Partnerships, S corporations, and multi-member LLCs must file their yearly tax return by this date.
• April 18, 2023: Single-member LLCs, sole proprietors, and C corporations (that follow the standard calendar year for accounting) must file their yearly tax return by this date.
• April 18, 2023: First quarter estimated tax payment due.
• June 15th, 2023: Second quarter estimated tax payment due.
• September 15, 2023: Third quarter estimated tax payment due.
• September 15, 2023: Partnerships, S corporations, and multi-member LLCs who received an extension must file their return by this date.
• October 16, 2023: Single-member LLCs, sole proprietors, and C corporations who received an extension must file their return by this date.
• January 16, 2024: Fourth quarter estimated tax payment due.

If any of these dates fall on a weekend or holiday, returns and payments are due the following business day. 

4. Gather the needed business tax return documents  

Filing taxes for your small business requires mountains of paperwork, and figuring out which forms to complete and which documentation to supply can be daunting. Here’s an overview of some of the tax documents you may need to gather ahead of filing. 

General: 

• Federal Tax ID number
• Social Security number
• Previous year’s tax return—up to three years prior for both state and federal

Business income taxes: 

• Accounting journals and ledgers
• Balance sheet and income statement
• Transactional supporting documents
• Bank deposit slips
• Bank account statements
• Invoices received and paid
• Checkbook
• Credit card statements
• Vehicle and mileage logs

Business-related expenses: 

• Receipts for expenses grouped into the following categories:

• Supplies: General office supplies
• Recurring operational costs: Rent, utilities, and subscription-based services
• Entertainment/travel: Any applicable business entertainment and travel expenses 
• Marketing/advertising costs: Expenses used to promote your business
• Professional fees: Attorneys, consultants, accountants, bookkeepers, etc
• Insurance policy details: Gather both individual and group plan documents, company vehicle policies, and any other insurance coverage documentation 
• Equipment and assets: Include depreciation schedules for each 

Employment taxes: 

• Employee forms:
• W-9: Employee tax withholding certificate
• I-9: Verification of employee legal working status
• W-2: Wage and tax statements for each employee
• 1099: Subcontractors and professional services
• Nonemployee tax form:
• 1099-MISC: Summary of fees and payments for nonemployees
• Payroll reports
• Gross monthly payroll
• Total deductions withheld from employee gross wages

Home office deductions: 

• Square footage of office space
• Total square footage of home
• Mortgage interest or rent paid
• Utilities
• Insurance policy

Small business tax deduction checklist 

To make staying on top of documentation easier, download and use the small business tax deduction checklist below to compile all the essentials. Whether you’re tackling your business taxes on your own or hiring a professional tax preparer, this small business tax checklist can guide you in the right direction to make filing your small business taxes easier. 

5. Make note of common tax deductions and credits  

Tax deductions and credits are excellent opportunities to reduce your small business tax bill. This is possible because certain expenses—such as health insurance and office expenses—and investments may be deductible from your taxable income, reducing how much you’ll owe after you file your return. 

Knowing the common small business deductions and credits that may apply to your business is an important step in preparing your business taxes.

Small business tax deductions 

Some of the notable small business tax deductions you may qualify for include:

• General business expenses
• Advertising
• Legal services
• Mileage
• Insurance
• Rent
• Interest
• Internet and phone services
• Depreciation of assets
• Employee salaries and benefits
• Training and education
• Meals and entertainment for business dealings
• Licenses

Small business tax credits 

There are many different small business tax credits that you may qualify for. Here are some common business tax credits you should be aware of:

• Small Employer Health Insurance Premiums Credit: Applies to employers with less than 25 employees who contribute to their health insurance premiums. This credit is only available for two consecutive tax periods. 
• Investment Credit: Investment credits include energy, reforestation, rehabilitation, and similar projects. 
• Disabled Access Credit: Applies to expenses required to improve accessibility. 
• Work Opportunity Credit: Applies to businesses that hire certain targeted groups of employees including veterans and ex-felons. 
• Alternative Motor Vehicle Credit: Applies to electric cars and hybrids for business use. 
• Paid Family and Medical Leave Credit: Applies to eligible employers who provided paid family and medical leave to their employees. 

Visit the IRS’s Business Tax Credits page for more information on tax credits your small business may be eligible for. 

6. Request a filing extension if needed   

If your tax situation is more complex or you are unable to gather all of the needed documents by the normal tax deadline, you may want to consider requesting an extension. 

You can use Form 7004 to file a six-month tax extension for reporting your business income. 

This small business tax checklist can help you make sure you’re able to file before your extension expires.

While an extension to file applies to submitting your tax forms, it does not give you an extension on paying. This means you’ll need to keep up with your estimated tax payments during this period. Otherwise, you could face a penalty resulting in a fine. If you can't keep up with tax payments, reach out to the IRS to see if you can arrange a payment plan. The sooner, the better.

As with other taxpayers, the IRS is eager to collect tax payments, so they’re often willing to work with small business owners to find a solution. 

Stay prepared for tax filing in 2023 

Running a business can be stressful, but filing taxes doesn’t have to be. This small business tax preparation checklist can help save precious time you’d be spending navigating complex state tax, sales tax, and employment issues, so you can put that time back into your business. 

With small business accounting software like QuickBooks, you can find all necessary documentation in one place for a more seamless tax preparation process. Enjoy the peace of mind that proper tax preparation and compliance brings by applying these essential steps in 2023 and beyond.