The Basics of Filing a Federal Tax Return for Businesses
Updated: Jan 31
Taxes can be enough of a headache for an individual, but as a business owner, they can become a full-blown migraine. There are more forms you may need to file, more taxes you may need to pay, and more things to take into consideration. You may be asking yourself:
“How do I pay taxes for my business?”
“How much do I need to pay in business taxes?”
“How do I report and pay business taxes?”
Hopefully, we can help answer some of these questions for you. The answers to these questions lie within your business structure.
If you’re an owner, partner, or member of a sole-proprietorship, partnership, LLC, or S-corporation, your business taxes will be passed through your business and onto you, the owner. This is known as pass-through tax. Generally, you will be paying for this tax through your quarterly estimated tax payment. Your business income and taxes will then be reported on your personal tax return.
If you own a pass-through business, here are some of the important things to note:
You will pay business taxes and report income on your individual return.
You avoid the double taxation that corporations receive at the corporate and shareholder level.
You will be taxed at your personal tax rate instead of the corporate tax rate.
You are eligible for a 20% tax deduction on your Qualified Business Income. This tax deduction was implemented by the 2017 Tax Cuts and Jobs Act and is effective until the end of 2025.
Reporting Business Income and Taxes
Sole Proprietorships and Single-Member LLCs
Owners of sole proprietorships and single-member LLCs will report and pay business taxes by filing a Schedule C with their individual tax returns.
On the Schedule C form, you will need to report:
Costs of Goods Sold
Information on Your Vehicle
Note: An LLC owned by a married couple is considered a single-member LLC and each partner will file a Schedule C.
Partnerships, Multiple-Member LLCs, and S-Corporations.
Partnerships, multiple-member LLCs, and S-corporations need to file business taxes by using Form 1065 or Form 1120-S (S-corps). Both of these forms are due on March 15 every year, unless it is a weekend or federal holiday, then it will be due on the next business day.
Each owner, partner, and member will receive a Schedule K-1 which includes:
Information About the Partnership
Information About the Partner
Partner’s Share of Current Year Income, Deductions, Credits, and Other Items
This is the information you will need to report on your personal tax return. The income each member needs to report is based on the percentage of the share that they claim.
Corporations and LLCs filing as a Corporation
Corporations and LLCs that file as a corporation are viewed as separate legal entities from their owners. Therefore, the tax liability isn’t passed through to the owner but instead taxed on a corporate level. Currently, the corporate tax rate is 21% and the corporation and shareholders will both be taxed at this rate.
Corporations that operate on a calendar year need to file a Corporation Income Tax Return, Form 1120 by April 15th, unless it is a weekend or federal holiday, then it will be due on the next business day.
Have More Questions?
There’s a lot that goes into paying and filing taxes for your business. We advise you to talk to your CPA or tax adviser to discuss the implications of each entity type and which formation may be best for you.