How to File Taxes for a Small Business
With tax preparation season upon us, we share some guidance on preparing your taxes accurately and on time.
It’s that time again: tax-season preparation. Small businesses across the country are getting ready for the coming months, gathering 1040s, 1099s and W2s for themselves and their employees.
How do taxes work with a small business?
Small business taxes are far from straightforward. Employers have several types of taxes to pay throughout the year. Tax planning enables you to mitigate your taxable income, take advantage of tax incentives, and avoid missing crucial deadlines.
Consult a professional from ADP to figure out how to file taxes for a small business and simplify your tax responsibilities.
Income tax will make up the majority of your tax burden. All businesses must pay federal taxes on their income during the year. Partnerships must file an annual information return, but they’re not liable for federal income taxes. Members of a partnership pay their taxes through their personal tax returns.
States also levy income taxes on small businesses, but state rates and filing mechanisms differ.
Employers also need to pay self-employment taxes. These taxes are comprised of Medicare and Social Security taxes.
The current self-employment tax rate is 15.3%, 12.4% for Social Security, and 2.9% for Medicare. Tax rates are so high because, as a self-employed person, you’re responsible for paying the employer and employee share of these social taxes through your business tax return.
Part of determining how to file taxes for a small business involves paying employment taxes. If you have any employees, you need to pay additional taxes, such as:
- Social Security
- Federal unemployment tax
- Federal income tax withholding
Businesses manufacturing or selling certain products may be eligible to pay excise taxes. You could be eligible for excise taxes if you have certain facilities or use specific types of equipment.
Each state independently determines what type of property is taxable. Some states will tax you based on any commercial real estate you hold. Others may levy property tax on computer equipment, company vehicles, and various business assets.
States can also tax sales of goods or services. If you’re located in one of these states, you’ll likely need to register for sales and use taxes manually.
Common exemptions to these taxes include food, clothing, newspapers, utilities, and medicine sales.
The IRS requires you to pay estimated taxes on income that isn’t subject to withholding or if the amount of tax being withheld doesn’t cover the amount you’re expected to owe.
Estimated taxes can cause confusion in small business tax preparation, so make sure you find out how much you need to pay on your account well before tax filing season.
Getting your taxes done
Here’s how to get your taxes in order for 2023.
1. Gather all your materials
In order to make sure you report taxes accurately, gather all your records in advance. You’ll need a copy of all your income and expenses, as well as information on how you’ve paid yourself and your people.
Roll will do all this for you, right in the app. If you’re working manually, you’ll need to make a few calculations.
2. Choose the right form
A small business filing taxes for the first time online can find themselves wondering what they need to register for and which forms they need to file. Online tax filing for a small business is relatively straightforward, but you may need to file additional forms.
The form you file with the IRS will depend on the kind of business you’ve set up. Many small businesses are registered as sole proprietors or LLCs, so they can file their business taxes as an addition to their personal taxes.
That form is known as Schedule C.
If you're operating as a corporation, you’ll need to prepare a separate corporate tax return. That’s done with Form 1120.
Some of the other common forms you’ll find include:
- Form W-2 – Employers need to file a separate W-2 for any employee who received more than $600 in wages. Every employee must be issued a W-2 by January 31.
- Form W-3 – This form is used to file Copy A portions of W-2s to the Social Security Administration (SSA).
- Form 1099-MISC – Employers need to file this form for every person or entity you paid at least $10 in royalties, $600 in rent, medical or healthcare payments, or other forms of compensation. Any contractors you worked with need to receive a copy of this form by January 31.
- Form 1099-NEC – Employers need to file this form for anyone who received more than $600 in non-employee compensation for the year, such as commissions, fees, or other forms of non-salaried payment. If you work with independent contractors, Form 1099-NEC is the form you’ll need to search for on the IRS website.
- Form 1096 – If you filed any 1099s, you must also send Form 1096. It summarizes the information on the above two 1099s.
- Form 940/941 – Form 940 is used to report your annual Federal Unemployment Tax payments. Form 941 is the quarterly tax return reporting all taxes withheld from your employees.
These are examples of the primary forms you’ll be filing as part of your returns. Depending on what you do, you may have to submit some other niche forms throughout the year.
3. Fill out your form
If you’re registered as a sole proprietor or LLC, tax filing is actually pretty easy. Schedule C is only two pages long, and it lists all the possible expenses you claim against your income.
Simply subtract your expenses from your income and you’ll arrive at your net profit or loss. You can then enter that number on your personal income tax form.
If you’ve registered as a corporation, Form 1120 is a little more complicated. See the instructions for the form from the IRS for more guidance.
4. Know Your Deadlines
There’s no single deadline for filing your returns as a small business. Miss any of your deadlines without good reason, and you could be hit with IRS penalties and lose out on your refund.
Here’s a brief overview of the most important tax filing deadlines for small businesses:
- January 31, 2023 – Deadline for issuing Forms W-2, 1099-NEC, and 1099-MISC to employees and independent contractors.
- March 15, 2023 – Federal tax filing deadline for partnerships, S-corps, and LLCs taxed as partnerships.
- April 18, 2023 – Federal tax filing deadline for C-corps, sole proprietors, single-member LLCs, and LLCs taxed as corporations.
- October 16, 2023 – Federal tax filing deadline for businesses that requested a filing extension.
Your quarterly tax filing deadlines are:
- April 15, 2023
- June 15, 2023
- September 15, 2023
- January 15, 2024
5. File Taxes with Roll
For next year's taxes, consider Roll. If you sign up now, you’ll not only get to run payroll in under a minute: Roll offers full-service tax filing as well, gathering the information you need to file your taxes in 2023. W2s and other forms are done and processed digitally without needing to go to a bank or a physical location.
There are many other options for filing your taxes, of course, including a range of paid software that will submit electronically on your behalf.
You can of course go the paper route, completing your taxes after printing out the forms and mailing them to the IRS.
Don't forget about the new tax rule for small businesses
Just a reminder, there’s something all small businesses need to know when prepping their 1099s for filing in 2023, for the 2022 tax year – and we can make sure you're ahead of the curve. There’s been a change to the American Rescue Plan Act of 2021 that affects almost all small businesses and freelancers.
As of 2022, small businesses and freelancers that use third-party digital payment services, such as Venmo or Paypal, are required to report any and all transactions that total $600 or more. This is something small businesses should already be reporting during tax prep season, but now the IRS will look into any businesses to look for those unreported payments.
Even those who sell on platforms like Etsy or ebay can expect to receive a 1099-K form from those digital payment services used for transactions.
Small Business Tax Filing FAQs
If your net earnings from self-employment were $400 or more, you need to know how to file taxes for a small business.
Use a professional tax filer if you are wondering how to file taxes for a small business. You can also get help with payroll from ADP’s mobile service for small business taxes made easy.
You could be hit by financial penalties for every offense if you missed the deadline without filing an extension. Make sure you plan to file in advance with the help of ADP’s industry-leading HR, payroll, and small business tax service.
Make payroll and tax filing easy with Roll
If you have any questions when running your yearly reports or payroll, as a Roll by ADP customer - you have access to 24/7 Live Chat Support to help you every step of the way.
If you haven’t tried Roll yet, get a free trial and be on your way to a less stressful tax season next year!