5 Types of Tax Forms Every Small Business Owner Should Know
5 Types of Tax Forms Every Small Business Owner Should Know
Taxes? Ugh, this is a true nightmare for any small business owner. You should know the appropriate forms to make the tax-paying process less tricky. These will assist you, whether you are an experienced entrepreneur or just starting. Here are five essential types of tax forms you should know about:
1. Income Tax Forms
Every small business must report its income to the IRS. Depending on your business structure, the form you use will be:
Sole Proprietors and Single-Member LLCs: File Schedule C (Profit or Loss from Business) with your income tax return (Form 1040).
Partnerships: Use Form 1065 (U.S. Return of Partnership Income) to report income and distribute a Schedule K-1 to partners.
Corporations: File Form 1120 (C corporations) or Form 1120-S (S corporations).
According to the National Small Business Association, tax complexity ranks among the top 10 hurdles for small business owners. The first step to make this process convenient is filing the appropriate income tax form.
2. Estimated Taxes
If you expect to owe $1,000 or more in taxes, you must pay estimated taxes quarterly. Use Form 1040-ES to calculate and submit these payments. This applies to:
Sole proprietors
Partners
S corporation shareholders
The IRS charges penalties for underpayment of estimated taxes. Mark your calendar for the quarterly due dates - April 15, June 15, September 15, and January 15 of the following year. This will keep you on target.
3. Self-Employment Tax
Are you self-employed? If yes, you have to pay self-employment tax to cover Social Security and Medicare. Use Schedule SE (Self-Employment Tax) to calculate these payments and file it with your income tax return.
Self-employment tax is 15.3% of your net earnings. It is inclusive of 12.4% for Social Security and 2.9% for Medicare. Yet you can deduct half of your self-employment tax when you calculate your adjusted gross income.
4. Employment Taxes
If you have employees, employment taxes are a must. These include:
Social Security and Medicare Taxes: File Form 941 (Employer’s Quarterly Federal Tax Return) or Form 944 (Annual Federal Tax Return for smaller employers).
Federal Unemployment Tax (FUTA): Use Form 940 to report unemployment tax liabilities.
PRO TIP: Don’t forget to provide employees with Form W-2 at the end of the year. For independent contractors, you’ll need to file Form 1099-NEC.
5. Excise Tax
Some businesses involve specific goods, services, or activities, that demand you to pay excise tax. This applies to industries like:
Transportation (fuel taxes)
Manufacturing (alcohol and tobacco taxes)
Retail (certain luxury items)
Use Form 720 (Quarterly Federal Excise Tax Return) to report and pay excise taxes. Read through the IRS guidelines to see if this tax applies to your business. For example, If you own a trucking company, you must file Form 2290 (Heavy Vehicle Use Tax Return).
Final Thoughts
Taxes are a critical part of running a small business to avoid getting penalties. Figuring them out is a complex process - but we are here to assist you. If this seems too complex, let us handle your taxes. As a business owner, you should always be prepared for the tax season.