Filing taxes as a small business owner can be stressful and time-consuming. The key to minimizing that stress is organization. It sounds simple, but planning can save you both time and money. Use Payline and our partnership with TurboTax to file your taxes.
How to File Taxes for a Small Business Owner
Filing taxes as a small business owner can be pretty stressful. The key to minimizing that stress is organization. It sounds simple, but planning can save you both time and money. First, let’s start with what you’re going to need to file your taxes:
- Personal information (SSN, address, DOB, etc.)
- Last year’s tax returns
- Employer Identification Number (EIN)
- Business financial records (Accounts receivable and accounts payable)
- Overhead expenses (Receipts for rent, utilities, phone lines, etc.)
- Office supplies and equipment
- Employee salary records
- Mileage records
- Advertising costs
Knowing what you’re going to need ahead of time can save you that panicked scramble to gather receipts and records the night before taxes are due.
What Kind of Taxes do Small Business Owners Need to Pay?
You’re probably already familiar with the process of paying federal and state taxes. (There are currently only nine states that don’t charge a state tax.) As a small business owner, things get a little more complicated, and you may be required to pay some or all of the following:
- Federal income tax: Based on the income your business earns
- State income tax: Based on the income your business earns
- Self-employment tax: As a self-employed business owner, you’ll need to cover social security and Medicare taxes
- Employment tax: The payroll taxes you deduct from employee paychecks for federal, state, social security, Medicare, and federal unemployment
- Excise tax: A tax you pay if your business sells certain goods or services, such as alcohol, fuel, or tobacco
- Sales tax: 45 states have a sales tax requirement. If you sell goods and services, you may be responsible for calculating, collecting, and reporting that sales tax.
- Property tax: If your business owns any commercial property, land, or real estate, it will be responsible for paying the property tax determined by the municipality where the company is located.
Now that you know some of the basics, it’s just a matter of downloading the form, right? It’s not that simple. You’re going to need to select the correct form based on the type of business entity you set up.
How to File Based on Business Types
You have the basics, so now you’re going to need to get the correct forms based on how you set up your business.
- Sole Proprietorship: For a business owned and operated by a single person, the process is relatively simple. A sole proprietor reports business income and losses on their income tax return. Business profits are taxed at the personal income tax rate, and as a solo owner, you are responsible for paying self-employment taxes that cover Medicare and social security requirements.
Sole proprietors will typically file a Schedule C or a Schedule C-EZ with their Form 1040 and are required to pay quarterly estimated taxes.
- Partnerships: Businesses with two or more owners fall into three categories; general partnerships, limited partnerships, or limited liability partnerships. All business owners involved in the partnership must pay income taxes, self-employment taxes, and quarterly estimated taxes.
With a partnership, the business has to file Form 1065, which reports income, deductions, gains, and losses from the business’s operations. The company itself doesn’t pay any income tax; instead, the partners are taxed as individuals and therefore are not subject to corporate tax rates. Each owner files a personal tax return and details income and losses on a Schedule K-1 form.
- C-Corporations: Small businesses structured as C-corporations are legally separate from the owner and are taxed at a flat income tax rate of 21%. The business files a Form 1120, and shareholders must file personal income taxes based on profits paid through dividends. Shareholders who participate in the company’s day-to-day operations are considered employees and are also responsible for paying self-employment taxes.
- S-Corporations: In an S-corporation, shareholders report business and income losses on their tax forms and are not charged a corporate tax rate. These small businesses file a Form 1120S in addition to their income tax return. Like in a C-corporation, those earning salaries in an S-corporation are responsible for paying self-employment taxes and must include details on income and losses on a Schedule K-1.
- Limited Liability Companies (LLC): In an LLC, the owner(s) are legally protected from their company’s debts and liabilities. As a small business owner, you’ll file your income taxes and are responsible for making quarterly tax payments. You’ll also be required to submit Form 1065.
Unless you’re an accountant or tax attorney, this is a whole lot of information to wade through and understand. What if you make a mistake and file the wrong form? You can always reach out to the IRS, but if you’ve ever been on their website, you know how frustrating it can be to interpret the tax lingo. And forget about calling them on the phone; it’s nearly impossible to get through to speak with a live person.
You can hire an accountant, but that can cost you between $150 to $500! There are several options available online that promise easy step-by-step instructions and the highest possible refunds. Some are even free. So how do you choose the right partner to get your taxes filed safely, correctly, and on time?
Why Turbo Tax Works
In addition to consistently receiving 5-star ratings from companies like Forbes, Turbo Tax also receives rave reviews from customers for its easy, customer-friendly interface. Like an accountant, the Turbo Tax interface will ask you a series of simple questions to choose the correct forms and search for the maximum allowable deductions. But unlike an accountant, the clock isn’t ticking. If you need additional information or double-check your answers, you can save your work and pick it back up later.
Get every dollar that you deserve! Turbo Tax designed its service to help small business owners find over 450 possible tax deductions and credits, including some startup costs you might not have considered. They will guide you through the latest tax laws and help you plan to maximize next year’s refund. If you have employees or work with contractors, Turbo Tax can create W-2 and 1099 tax forms.
In addition to helping you file the appropriate state and federal taxes, you’ll find dozens of videos, articles, and community forums designed to help you understand your responsibilities as an employer and business owner. If Covid-19 has impacted your business, there are frequent updates informing you about available help and additional tax assistance. And like many of the competitors, Turbo Tax guarantees the maximum allowable refund for all of its customers.
Turbo Tax Costs
The free Turbo Tax calculator can help you get an idea of what you can expect to pay or see if you’re eligible for a refund. For most small business owners and sole proprietors, Turbo Tax recommends The Self-Employed edition. It’s designed to help find every tax deduction and credit available. Users can save time by importing data directly from QuickBooks. For just $200, you have access to on-demand answers, year-round advice, and a final review from a tax expert before you file.
If feeling uncertain, for an additional $90, a tax expert will prepare, sign, and file your taxes for you. You will also receive year-round tax advice and guidance.
Turbo Tax Features
There are many options available for online tax preparation services, so what makes Turbo Tax stand out? In review after review, it’s the outstanding customer support that makes them the gold standard. If you’re the type that prefers to do it yourself, Turbo Tax maintains a searchable database of FAQ’s and several video tutorials that help you learn at your own pace.
All users have access to Turbo Tax Assistant, a chatbot, or a contact form that promises a response within 24 hours. Paid users get access to a TurboTax specialist. And for the first time this year, they’re offering live, on-screen tax advice, help to file your tax return, and guidance to help you prepare for the following calendar year.
Community Support: In June 2020, Intuit unveiled a new free tool to help anyone (customers or not) navigate the government’s CARES Act assistance program. The company’s Aid Assist tool helps individuals and small business owners determine eligibility and the tax impact of the Paycheck Protection Program, Economic Injury Disaster Loans, and unemployment assistance programs.
The one thing that strikes fear in anyone’s heart is the threat of an IRS audit. If you want someone to represent you in front of the IRS, you’ll need MAX, TurboTax’s audit defense product. For an extra $60, it includes features such as identity theft monitoring, loss insurance, and restoration help. $60 is probably less than whatever tax penalty you are accruing every month.
Couple that kind of support with a best-in-class user experience, and the answer seems straightforward. Choose Turbo Tax.