Filing taxes for your business can seem overwhelming, but doing it on your own is often an easy way to save some money. Plenty of business owners manage their own taxes and you can too! The key is to keep detailed records during the year so that when tax time rolls around, you aren’t scrambling for the information you need.
Once you’re ready to sit down and start filling out forms, you can follow these simple steps to ensure your taxes are filed accurately and you take advantage of as many deductions as possible.
Step 1: Know Your EIN
EIN stands for “employer identification number.” It’s kind of like your business’s social security number. It’s an identifier used by the federal government to help them match your business’s financial records with your actual expenditures to calculate what you owe.
Not every business needs an EIN but most do. You need to apply for an EIN if you meet any of the following requirements:
- You have at least one employee
- Your business is established as a corporation or partnership
- You have a tax-deferred pension plan
There are a few more requirements that affect niche industries, so be sure to check with the IRS website before you apply.
Step 2: Understand the Types of Taxes
Business owners are responsible for a heavier tax burden than employees, mostly because they have to pay the employee and business portions of taxes like FICA. Before you start on your annual taxes, be sure you know what type of taxes your business owes. A few common examples include:
- Income tax – just like you pay income tax on your paychecks as an employee, your business has to pay income tax on the money it earned last year.
- Self-employment tax – this refers to the Social Security and Medicare taxes that come out of every employee’s paycheck. Typically employees pay half and the business pays half, but as a business owner, you’re responsible for the full 15.3%.
- Payroll taxes – if you have employees, then you’re also responsible for a portion of their FICA taxes, unemployment taxes, state and federal income taxes and more.
There are other niche taxes that might affect your business depending on its size, location and industry. Just keep in mind to always check your state’s specific tax laws, as each one has its own rules and regulations.
Step 3: Gather Your Forms
Now that you know what you’re responsible for, you can start gathering all of the forms you’ll need to file your taxes.
The most common tax form for small business owners is Schedule C (Form 1040). This is for businesses that operate as a sole proprietorship or single-member LLC. It’s a simple form that walks you through reporting income and losses. Most people who use this form will also need to fill out the Schedule SE, used for reporting the self-employment tax.
In addition to these, you’ll need to find the right forms to file for tax credits like the employee retention credit (ERC) or workplace opportunity credit. For example, if you want to file for ERC, then you’ll have to fill out Form 941-X.
Step 4: Fill Out Forms and File
With all of your forms in hand and the knowledge from this blog post, you can start working on your taxes! Each form includes specific instructions on how to complete it, line by line. This makes it easy to walk yourself through them and come out with the correct answer.
Keep a calculator close by as you work on your taxes because many of the lines require simple math across different amounts on the form. If you follow the directions closely, then you’ll have an accurate calculation of what you owe or will have returned.
Filling out your taxes is an important part of running a business and if you can do it yourself, you can save hundreds of dollars each year on tax preparation.