How to File Business Taxes: A Guide by Kordis

Different Business Structures and Tax Implications

The tax implications for your business depend on its legal structure:

• Sole Proprietorships and Partnerships: These are pass-through entities, meaning business profits and losses are reported on the owners' personal tax returns. Sole proprietors typically file Schedule C (Form 1040).
• Corporations: C corporations are taxed separately from their owners, resulting in double taxation—profits are taxed at the corporate level and again on shareholders' dividends. S corporations, however, are pass-through entities.
• LLCs: Limited Liability Companies (LLCs) can choose to be taxed as a corporation or a pass-through entity.

Understanding your business structure is crucial for choosing the right tax forms and optimizing your tax strategy. For more on maximizing deductions, check out our article on are accounting services tax deductible for businesses.

Essential Tax Forms for Businesses

Here are some of the key tax forms your business may need to file:

• Schedule C (Form 1040): For sole proprietors to report business income and expenses.
• Form 1120: For corporations to report income, gains, losses, deductions, and credits.
• Form 1065: For partnerships to report income and expenses.
• Form 1120-S: For S corporations to report income, losses, and distributions to shareholders.

Choosing the correct form is crucial to avoid penalties. If you need extra time, learn how to request an extension in our article on how to file an extension for business taxes.

Gathering Documentation

Before filing, ensure you have all necessary documentation:

• Income Statements: Summarize your business’s income for the year.
• Expense Reports: Include receipts for business expenses, such as office supplies, rent, and utilities.
• Financial Statements: Statements of cash flow, profit, and loss.

Using accounting software or partnering with a professional service like Kordis can streamline this process, helping you stay organized throughout the year.

Determining Deductions and Credits

Identifying deductions and tax credits can significantly reduce your tax liability:

• Deductions: Common deductions include rent, salaries, office supplies, and advertising expenses. Check out our guide on business gifts as tax deductions for additional ways to reduce taxable income.
• Credits: Tax credits, such as the R&D credit, directly reduce your tax liability. Be sure to explore all available credits to optimize your tax savings.

Understanding deductions and credits can help you save money on taxes. 

Employment and Excise Taxes

If you have employees, you must pay:

• Social Security and Medicare Taxes: Calculated based on wages paid to employees.
• Federal Unemployment Tax (FUTA): Paid to provide benefits to unemployed workers.
• Excise Taxes: Applies to specific goods like fuel, tobacco, and alcohol.

Accurately calculating these taxes ensures compliance and helps avoid penalties.

Estimated Tax Payments for the Self-Employed

Self-employed individuals must make estimated tax payments throughout the year to cover their tax obligations. Use Form 1040-ES to calculate your estimated taxes based on projected income and expenses. Quarterly payments are due on April 15, June 15, September 15, and January 15.

If you're concerned about managing these payments, our guide on how to file business taxes can provide further insights.

Submitting Tax Forms

Ensure you have the correct forms for your business type. Use Form 7004 to request an automatic extension if needed, which can provide up to six extra months to file your tax return.

• Electronic Filing: The IRS e-file system is the fastest and most secure way to submit your tax forms. It also reduces the risk of errors.
• Paper Filing: For those who prefer, paper forms can be mailed to the IRS, but processing times may be longer.

Handling Payments and Deadlines

To avoid penalties, it’s critical to pay any taxes owed by the original due date, even if you file for an extension. The IRS offers multiple payment methods, including:

• Electronic Funds Withdrawal
• Credit or Debit Card Payments
• Payment Plans for Large Balances

Dealing with Audits and Inquiries

If the IRS contacts you for an audit, it’s essential to be prepared:

• Respond Promptly: Read the notice carefully and follow the instructions.
• Provide Accurate Documentation: Ensure you have receipts, bank statements, and financial records to support your filings.

Kordis offers audit support services to guide you through this process, ensuring you remain compliant.

Maintaining Records and Preparing for Next Year

Good record-keeping is vital for future tax filings and audit protection:

• Document Retention: Keep records for at least three years, or longer if you have complex tax situations.
• Future Planning: Start preparing for next year’s taxes early to avoid last-minute stress.

For more guidance on tax planning and compliance, check out our article on how long it takes to receive VAT refunds to streamline your financial strategies.