One of the greatest hardships of owning a small or large business entity is the dreaded feeling of not knowing how to file taxes. The truth is that filing taxes can go from being an exhausting experience to as simple as making a cup of coffee, depending on the size of your business. Filing taxes can be an unnerving affair even if you choose to file online to avoid the bureaucratic paperwork. And if you’ve received a notice from the IRS to file your taxes, there’s no need to panic as long as you stick to the guidelines.
Using the correct online forms, making sure you file on time, and not underpaying your taxes are some of the basics tactics you’ll have to adapt and pay attention to. Furthermore, one of the perks of filing taxes online is the ability to make corrections because of human or technical error, even after the due date.
Moreover, understanding sales taxes to estimate the overall net worth would greatly help you file taxes online.
In this blog, we’ll take a look at some of the questions relating to how to file business taxes, types of taxation for different corporations, which form to use, and most importantly, when to file taxes for your limited liability company (LLC).
Classification of Corporations and Taxes
There are essentially two types of corporations in the US: C corporations and S corporations. The major difference between the two is the division of the Internal Revenue Code that applies to S corporations.
And always remember that an S corporation registers in the beginning as a corporation, but later on chooses to have an S corporation status due to financial gain or expansion.
How to File Business Taxes for your LLC
Here’s a simplified process to help guide you on how to file business taxes. So, if you want to save an awful lot of trouble, let’s jump right into it.
Collection of Records
You should have all the records and necessary documentation showing your business earnings and expenses. Always be on your guard when it comes to taxes. If you rush to submit a form that states incorrect business income, it could have serious repercussions for you and your business.
The greatest perk of filing taxes online is that you can calculate your income in the spreadsheet very easily. It is not easy to find out an exact transactional activity without having to remember every expense detail that may or may not have occurred during the filing year.
QuickBooks and Quicken are two of the most used software to gather the necessary information to file corporate taxes.
Choosing the Correct Form
First and foremost, make sure that you’ve chosen the correct IRS tax form. As per law, you’re required to disclose your business earnings to the IRS.
Schedule C applies to you if you choose to run your LLC entity as a sole ownership. Whereas if you deem your LLC firm a corporation, a separate corporate income tax form (1120) will have to be submitted.
By using any type of tax importing software, you can state the income and expenses of your business while the other details take care of on their own.
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Filling Out the Form
We've already established that the IRS allows small business entities to have a Schedule C option. Now, you might be wondering, what exactly is the disadvantage of using 1120 form and under what circumstances can it be used.
Well, it's simple; you have to run your entity as an LLC firm if it has surpassed the benchmarks of a small business organization. And the major downside of using a Form 1120 is the exclusion of your personal income taxes.
So, to get things in order, whether you're submitting Schedule C or Form 1120 to show your business earnings, you have the option to use the IRS website or input all your financial information through TurboTax.
The method of filing business taxes in Schedule C is fairly simple and you just need to fill 2 pages that can list all your expenses and leave room for more.
Afterward, all you basically have to do is subtract the expenses from your business earnings to get the net profit or loss for the business. Eventually, you will transfer that net amount to your personal income tax form.
Whereas in Form 1120, your taxable business income is computed in the same way as in Schedule C, the length of the form, however, varies in great detail. The 1120 Form has considerably more extensive procedure that is often handled by professional law firms. And of course, most of the details on Form1120 do not even apply to a small business.
Apart from using the 1120S Form, S corporations also use Schedule K-1 to show their shareholders corporate income or loss.
Beware of Deadlines
Meeting the right deadlines is probably the most important process when it comes to filing your corporate taxes. There have been a few changes recently in filing corporate income tax returns. However, for LLCs with a Dec. 31 year-end, the due date to file the tax return is April 15.
And if your LLC has a different year-end than Dec. 31, the due date for your tax return is the 15th day of the 4th month every year. Also, your due date will be six months from the due date of the original tax return for extended corporate tax returns.
Also, make sure that you don’t send the form and personal income tax return to the IRS. There’s no need to dwell over a separate filing once it’s decided that you use Schedule C form, which is already a part of your Form 1040.
So, to put it simply, if your firm is a C-Corp, you’re going to need to file a Form 1120 by the 15th day of the first quarter of the closing tax year. And if your LLC is an S Corp, you need to file the Form 1120S by the 15th of the third month following the close of the tax year.
