Operating a small business involves keeping track of finances, employees, and taxes. As tax season approaches, it’s important for small business owners to understand the common tax forms they may need to file. Knowing these documents helps ensure you file accurately and on time. Managing taxes ensures your small business remains compliant and avoids penalties. Familiarise yourself with the reporting requirements and common documents you’ll need to file. With good preparation, you can manage your small business taxes efficiently.
Employers must complete a W-2 form for each employee whom they paid during the year. This form shows how much tax was taken out of each paycheck for federal, state, Social Security, and Medicare taxes. Employees need the W-2 to complete their tax returns. As an employer, you must send Copy B of every W-2 to the Social Security Administration by January 31. Copy C goes to each employee by January 31 as well.
1099 forms report miscellaneous income paid to independent contractors. As a small business, you must issue a 1099-NEC to any non-employee who was paid at least $600 for services during the prior tax year. This documents their earnings so they can report the income on their tax return. There are a few different 1099 forms, each used to report specific types of miscellaneous income. Common 1099 varieties include:
- 1099-NEC: Non-employee compensation
- 1099-MISC: Rent, royalties, prizes, medical payments, etc.
- 1099-INT: Interest income
- 1099-DIV: Dividends and distributions
- 1099-B: Stock or mutual fund sales Independent contractors use the information on their 1099 forms to calculate how much tax they owe on their income.
Schedule C is used by self-employed individuals and independent contractors to report income or loss from a sole proprietorship. It details the net profit or loss from a business operated as a sole proprietorship. Line 31 of Schedule C calculates the net profit/loss amount that gets reported on Form 1040. Schedule C is attached to the individual’s personal 1040 tax return. It itemises income minus deductible business expenses. Deductions may include advertising, office supplies, utilities, vehicle expenses, and more costs directly related to running the business.
Employers subject to federal unemployment tax must file Form 940 annually. This form is used to report your FUTA (Federal Unemployment Tax Act) liability for the year. It summarises your employee wages and calculates the tax owed based on wage limits and eligible payments. Certain types of wages, such as health plan contributions, are excluded from the tax. Form 940 computes the taxable amount of employee earnings. The standard FUTA tax rate is 6% of the first $7,000 paid to each employee as wages.
Form 941 is filed quarterly to report an employer’s payroll withholding and FICA taxes. These include Social Security, Medicare, and federal income taxes withheld from employee wages. Employers must detail employee earnings, tax withholding, and deposits on Form 941 each quarter. The amounts reported should match the payroll register and pay stub deductions for the quarter. At the end of the year, amounts from all four quarters are combined on the annual Form 941.
Sales Tax Returns
Most states require businesses to collect sales tax on goods sold or services provided. The sales tax rate varies by state and locality. Periodically, you must file a sales tax return to remit the tax collected from customers. Filing frequency depends on sales volume but is usually monthly or quarterly. The sales tax return summarises total taxable sales. It calculates sales tax collected based on the applicable tax rate. You’ll report gross sales, any exempt sales, and total sales tax due.
In addition to income tax withholding, employers are responsible for payroll taxes, which fund Social Security and Medicare. These include:
- Social Security tax: 12.4% total (6.2% withheld from employees)
- Medicare tax: 2.9% (1.45% withheld)
- Federal unemployment tax (FUTA) The employer portion of these taxes is reported and paid using Form 941 quarterly. Form W-2 summarises annual Social Security and Medicare taxes withheld from employee’s pay stub. Independent contractors pay self-employment taxes for Social Security and Medicare. They report these through Schedule SE attached to Form 1040.
Partnerships and multi-member LLCs use Form 1065 to report income, deductions, and profit/loss allocation. This information flows through to the owners’ personal returns. Form 1065 summarises total income, expenses, partner capital accounts, and distributions. A Schedule K-1 details each partner’s share of net business income. Partners use this to report their allocated profit/loss on their own tax returns.
C corporations file Form 1120 to report business income, deductions, and net profit/loss. Shareholders only pay tax on corporate profits once distributed as dividends. The corporation particularly pays income tax on its profits by filing Form 1120. Owners then include any dividends as income on their personal returns. Form 1120 itemises income, tax deductions, taxable income, and total tax liability.
Payment processors like PayPal issue Form 1099-K to business account holders. This form reports total payment card and third-party transactions for the year. If your online business had over 200 transactions totaling $20,000 or more, you’ll receive a 1099-K. This allows the IRS to cross-check gross revenue reported on your other tax forms. Review 1099-K amounts to ensure accuracy and include them in your gross business income. Discrepancies may trigger an IRS notice if amounts don’t match other filings.
Form 1040 Schedule F
Farmers report income and expenses from farm operations on Schedule F with Form 1040. It itemises farm income, including sales of livestock and crops. Deductions include costs like seed, fertiliser, repairs, fuel, and property taxes. The end result is net farm profit or loss flowing through to personal Form 1040. A separate Schedule SE calculates self-employment tax liability on farm profits. Farm income and particular expenses reported on Schedule F drive SE tax amounts.
Business owners can file Form 4868 to extend their tax filing deadline. This gives you an additional six months to prepare and file your return. However, tax payments are still due on April 15 to avoid penalties and interest. Form 4868 is easy – it simply provides your name, address, and Social Security number and requires you to estimate total tax liability. There’s no need to explain why you’re requesting an extension. It gives you until October 15 to file your tax return.
Business owners can deduct home office expenses by filing Form 8829 with their tax returns. It determines the allowable home office deduction based on the space used for business, expenses paid, and total home size. Deductible costs include a percentage of rent/mortgage interest, utilities, repairs, insurance, and depreciation. You’ll also provide information used to calculate capital gain or loss when you sell the home. Keeping detailed records is key to substantiating the business use of your home. Form 8829 helps properly claim one of the most common small business tax deductions. Filing business taxes involves many potential forms depending on your entity structure. Pay stub amounts tied to year-end totals reported on W-2 and 1099 forms. Staying organised, tracking income and expenses, and understanding filing requirements will help your small business remain compliant and lower its tax bill.
Keeping good records of transactions and pay stub details allows you to complete these required tax forms for your small business accurately. Consider using particular accounting software to simplify the process. With preparation and understanding of reporting requirements, you can stay compliant and avoid issues with tax authorities.