Being a small business owner is stressful enough, and come tax time, the stress can be quite overwhelming with all of the terms, forms, and dates to remember – so much so that you might not dot your i’s and cross your t’s correctly. We demystify everything you need to know below. Time to get informed and organized for the most successful filing yet.
First, let’s get familiar with the dates (specifically, deadlines) you’ll be marking in your 2018 calendar stat.
January 31: Deadline to send out W-2s to your employees and 1099s to your contractors. Don’t forget to submit copies to the IRS.
February 28: Deadline to mail 1099s to the IRS.
March 15: Deadline to file corporate tax returns (Forms 1120, 1120S, 1065 – depending on if you’re a S or C corporation, or a partnership). More on forms below.
April 17: This year’s tax day is a few days later than usual. File your personal tax return, and applicable forms if you’re self employed. Don’t forget it’s also the date to contribute to your IRA, Health Savings Account, or solo 401(k).
April 30: Deadline to pay federal unemployment and file Form 941 for the first quarter.
July 31: Deadline to pay federal unemployment and file Form 941 for the second quarter.
October 31: Deadline to pay federal unemployment and file Form 941 for the third quarter.
January 31: Deadline to pay federal unemployment and file Form 941 for the fourth quarter.
Knowing which forms you need to file as soon as possible is imperative to successfully filling them out correctly and to your best advantage.
W-2: To report each of your employees annual wages and withheld taxes, you’ll submit a W-2 form for each. As noted, the deadline to submit is January 31.
W-4: In tandem with W-2s, the W-4 form is for your employees to fill out to declare their tax withholdings, which may include allowances for spouses and dependents. This must be filled out before new employees receive their first paycheck.
1099: If you hire contractors, you will provide this form in a similar fashion to a W-2. In the form, you will report how much you paid them for their services during the tax year; you will also have to send a copy to the IRS just like a W-2.
1040/Schedule C: You’ll need this form if your business is a sole proprietorship or single-member LLC to report how much you made or lost during the tax year. The traditional Schedule C form has 5 parts which can be daunting; the IRS also provides the option to file a Schedule EZ, which has one part. You will still need to fill out a separate form if you are claiming expenses for a vehicle.
940: When employees are let go and qualify for unemployment, you will need to submit this form to report your annual FUTA (Federal Unemployment Tax Act) tax, in order to determine how much your company will pay into unemployment insurance. Form 940 is submitted annually, but you will need to pay this tax quarterly.
941/Schedule B: Similar to Form 940, this form is required to report federal income tax and other payroll taxes withheld from your employees’ paychecks. Submit one form for all employees, which is due quarterly.
1065: For partnerships and LLCs, Form 1065 informs the IRS of your business’s income or loss.
1120: Regular corporations are required to submit Form 1120 for reporting income or loss.
Schedule SE: For those that are self-employed, you will need to calculate how much Social Security and Medicare tax to pay by submitting Schedule SE.
8829: Many business owners take care of their duties from home; Form 8829 allows you to deduct living costs as business expenses. Before claiming deductions, ensure you’re aware of
SS-4: All businesses need to be assigned an EIN (employer identification number) by the IRS for tax filing and reporting. Use this form to request the 9-digit number
Learn the language of business tax terminology to avoid misunderstandings with forms and filing.
Accrual vs Cash Method: These are the two types of accounting, the most popular of them being accrual. The difference is the timing of tracking revenue; accrual counts revenue when the client is invoiced, whereas the cash method counts revenue when the invoices are actually paid.
Audit: Audits are to be avoided, but often result in a ‘no harm, no foul’ situation. The IRS simply wants to double check your records, which is why organized and accurate documentation is essential to tax filing.
Business Structure: When starting a business, you have the option to structure it a particular way, all of which have their own advantages for specific needs. Options include sole proprietorship, C corporation, S corporation, and an LLC.
Deduction: Deductions reduce your taxable income, meaning you’ll pay less in taxes, and hopefully receive a refund. Qualifying for as many deductions as possible is typically on the mind of every taxpayer, so be sure you know which are available to you. As a business owner, you may be able to deduct rent, vehicle expenses, insurance, and more.
Depreciation: This term simply refers to the loss of value of an item over time. For example, you can write off the depreciation of your business’s equipment, as there is a loss of value.
Estimated Tax: As a business owner, you are required to calculate and pay taxes, however it is difficult to predict revenue with perfect accuracy. Because of these circumstances, you will pay estimated tax on a quarterly basis.
Exemption: Exemptions function like deductions, in that it reduces your taxable income but is a preset amount rather than the amount of an expense.
Payroll Tax: Payroll tax is both the amount you pay to the government based on your employees wages, and the tax deducted from your employees wages. It is calculated as a percentage of total salary.
Tax Credit: Unlike deductions and exemptions, tax credits directly reduce the tax you pay instead of your taxable income.
After this crash course in all things business, you’re prepared to mark your calendars, start your research, and begin strategizing for a successful tax filing. To navigate the more complex matters, consult your tax professional whether you are a novice or seasoned entrepreneur.