January 10, 2024
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 tax forms to file and documentation to gather.
1. Know the types of small business taxes
All businesses have 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 Taxes
Income taxes are based on the money your business makes and are paid on both a federal and state level. The amount you owe depends on how your business is set up.
C Corporations deal with double taxation, meaning they pay taxes twice—first on the money the business makes and then again when they pay dividends to their owners (shareholders). The current federal tax rate for C corporations is 21%.
Unlike C Corporations, businesses like sole proprietorships, partnerships, and S corporations pay income taxes individually. These entities are known as “flow-through” entities (also known as pass-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.
Also unlike C Corporations, no federal taxes are paid at the business level for these types. The amount of income tax you pay depends on your personal tax bracket.
A business’ state income tax varies by state—and sometimes by city. Depending on where you do business and make money, you may have filing requirements in different jurisdictions. The rules and requirements are complex, and it’s best to consult your tax advisor if those rules apply to you.
Estimated Taxes
Businesses are required to pay estimated taxes quarterly. If you run a C Corporation and you think you'll owe more than $500 in taxes, you have to pay estimated taxes every quarter. For all other business structures, you need to pay estimated taxes, too, but only if you expect to owe more than $500 on your personal tax return.
The estimated tax deadlines for 2024 are as follows:
Jan 16, 2024: 2023 fourth quarter estimated taxes due
April 15, 2024: 2024 first quarter estimated taxes due
June 17, 2024: 2024 second quarter estimated taxes due
Sept 16, 2024: 2024 third quarter estimated taxes due
Jan 15, 2025: 2025 4th quarter estimated taxes due
If the date for paying taxes falls on a holiday or weekend, taxes will be due the following business day.
Self-employment Taxes
If you're a sole proprietor or a partner actively involved in your business, you need to pay both the employee and employer parts of Social Security and Medicare taxes. The current self-employment tax rate in 2024 is 15.3% and is divided as follows:
12.4%: Social Security tax
2.9%: Medicare tax
If you earn more than $400 from your business, you have to report it as self-employed income and pay the self-employment tax.
Employment Taxes
When you have employees in your small business, there are certain taxes you need to handle, known as employment or payroll taxes. Here's what's included:
Social Security and Medicare tax: Employers are responsible for deducting Social Security and Medicare taxes from employee paychecks. Your business pays part of these taxes, too. Your business pays part of these taxes, too. The current rates are 12.4% for Social Security (6.2% from the employee and 6.2% from your business) and 2.9% for Medicare (1.45% from the employee and the other half from your business).
Federal and state income tax withholding: As a business owner, you are responsible for withholding income taxes on behalf of your employees. The exact amount varies depending on the W-4 allowances your employees claimed.
Federal unemployment tax: The current federal unemployment tax rate (FUTA) is 6% on the first $7,000 of income for each employee. You might also need to pay state unemployment taxes, which can be different from the federal rate.
Consult a tax advisor if you’re unclear about any employment taxes you may be responsible for.
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:
Communication and air transportation taxes
Fuel tax
Retail tax (truck, trailer, semi-trailer 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’ll need specific forms—like Form 1099-MISC or Form 1120—to report profits, losses, deductions, and credits to the IRS. Here are some common IRS forms for reporting small business taxes:
Schedule C: If you're a sole proprietor, you use this form along with Form 1040 to report your income.
Schedule K-1: For owners of pass-through entities like S corporations or partnerships, this form is used to report income.
1099-MISC: Use this form to report rental income to landlords or payments to attorneys.
1099-NEC: This form is for reporting non-employee compensation.
Form 1120: If your business is a C corporation, use this form to report income.
Form 1120-S: For S corporations, this form is used to report income. It's filed separately from your personal income tax return.
Form 1065: Owners of partnerships use this information return, filed separately from their personal income tax return.
Form 720: This is for reporting excise taxes related to your business.
If you have questions about which forms to file or how to fill them out, a dedicated tax professional can help ensure you file correctly and on time.
3. Create a tax filing calendar
As a small business owner, it's easy for tax deadlines to slip your mind. However, it’s important to 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 keep your business cash flow in good shape, consider creating a tax calendar.
Here are the essential small business tax dates for 2024:
Jan 31, 2024: 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.
Feb 28, 2024: Deadline for companies to file their information return using a 1099 or 1096.
Mar 15, 2024: Partnerships, S corporations, and multi-member LLCs must file their yearly tax return by this date.
April 18, 2024: 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 15, 2024: First quarter estimated tax payment due.
June 17, 2024: Second quarter estimated tax payment due.
Sept 16, 2024: Third quarter estimated tax payment due.
Sept 16, 2024: Partnerships, S corporations, and multi-member LLCs who received an extension must file their return by this date.
Oct 15, 2024: Single-member LLCs, sole proprietors, and C corporations who received an extension must file their return by this date.
Jan 15, 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
When filing taxes for your small business, the paperwork can be overwhelming. Knowing which forms to fill out and what documents to provide is crucial. Here's an overview of the tax documents you might need to gather before 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
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 are 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
Home office deductions:
Square footage of office space
Total square footage of home
Mortgage interest or rent paid
Utilities
Insurance policy
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 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 which tax breaks and credits 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
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: For employers with fewer than 25 employees contributing to health insurance premiums.
Investment Credit: Includes credits for energy, reforestation, rehabilitation, and similar projects.
Disabled Access Credit: Applies to expenses for improving accessibility.
Work Opportunity Credit: For businesses hiring targeted groups, such as veterans and ex-felons.
Alternative Motor Vehicle Credit: Applies to electric cars and hybrids for business use.
Paid Family and Medical Leave Credit: For eligible employers providing paid family and medical leave.
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 complicated, or you can't gather all your documents by the regular tax deadline, consider requesting an extension. You can use Form 7004 to get a six-month extension for reporting your business income.
Remember, an extension to file doesn't mean you get more time to pay. You still need to keep up with your estimated tax payments during this period. Falling behind could result in a fine.
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. If paying on time is tough, contact the IRS early to discuss a payment plan. The sooner, the better.
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