– By Allen Brown.
For a small business owner, the calculation of profit or loss is quite important for filing income tax or personal tax returns. However, the process may often seem daunting and unclear to many. So, today we are reviewing tax for small businesses in a simple and easy-to-follow guide. In this guide, we will be going over the procedure for a sole proprietorship, corporations, or multiple owner partnerships. The procedures are different and cannot be covered in this guide alone. So, here are the things that you must keep in mind.
All About Due Dates and Forms
As a small business owner, you often file the business and personal tax return simultaneously, so the due dates for both are often the same. The date is usually April 15, but it is a good idea to always check. In case the due date for tax returns falls on a weekend or a public holiday, the next business day is the one when you will be filing the personal and business tax returns for that year. The due dates may often have extensions for everyone or it can be only applicable within certain States. So, you should definitely double-check the due date for your area without any delay.
As a small business owner, you may even be eligible to be given a 20% deduction of ‘qualified business income’ that is in addition to other normal deductions concerning your business. In case you think that you may be eligible for this, you can seek advice from a qualified tax preparer that you may be consulting with. For tax returns, you have to follow the schedule C income tax forms, and it is recommended that you download all the forms in a timely manner. As a sole proprietor or a single-member LLC, you will require Schedule C Business profit-loss form with instructions, and Schedule SE for self-employment with instructions.
What Do You Need for Schedule C Completion?
So, in order to quickly complete the process of tax returns, you must have all the information ready to use. Start with the product inventory or any parts for sale (if you deal with this) and calculate the overall cost of the goods that you sold.
You should also have documentation to prove that all the tax deductions for your business (including the cost of travel, driving, food) are accounted for. It is important to note that the expenses related to entertainment are not included in the deductibles anymore. Professionals at https://www.taxsharkinc.com/irs-notice-cp49/ explain that you will also require updated information about the expenses related to purchasing different business assets (this may include equipment or vehicles), this information is used to estimate deductions for depreciation. The Schedule C form will also require information about any possible use of your house as a business space for related deductions. So, you should have all this information ready before you start filling these forms.
Taxes Related to Self-Employment
As a small business owner, you are required to pay for the self-employment tax on the profit or net income of your business. These self-employment taxes include the Medicare or social security tax as well. However, in case you did not make a profit from your business this year, or perhaps the overall income was $400 or less, then you are exempted from this tax category for that particular year.
Calculating the self-employment tax is very simple and all you have to do is to multiply the income by 92.35% and then multiply the obtained figure by 15.3% to calculate the figure for tax liability for this category. With this amount, you can determine whether you are eligible for Medicare or social security benefits or not. Normally, you will not be getting any credit for the social security or medicare benefit if you did not make any money. You can either use a software program to make all the tax-related calculations or you can do the calculations yourself.
Adding Schedule C to Personal Tax Return
You can add the income on Schedule C form to the personal tax return income on Schedule 1 as well. You can make use of this schedule to overall additional income as well as adjustments. You will then bring them to Form 1040-SR or Form 1040. You will have to input the total tax in the self-employment category on Schedule 2 from the Schedule SE of Additional Taxes Form 1040. On Schedule 1, deductions are included for the self-employment that is one-halved. You can also add to Schedule 1 any business adjustments or tax credits if you are eligible for those.
How to Go About the Filing Process?
You choose to file the tax returns via mail or you can make use of the e-file. On the last page of Form 1040 instructions, you will find all the addresses that you can use to mail the tax return forms to the IRS and be done with the process. If you are going for the e-file option, some additional costs may apply.
If required, you can also opt for applying for an extension for filing the taxes. The extension that you receive is often of 6 months only for any non-corporate tax returns. However, this extension is not applicable to the payment. So, you must pay the taxes by the due date if you want to avoid any interest or penalties.
In case you committed an error while filing the return, you will have to then file an amended return to rectify that mistake on the tax return. The form that you will use for filing the amended return will depend on the type of your business. Lastly, it is advisable that you pay an estimated amount if you are not well aware of the absolute taxes that you have to pay for that year. Often business owners have this question: Will I require a tax preparer or not? If you are a simple business then you may do quite well with a simple tax software that does the tax calculations but for other small businesses going for the tax preparer is recommended. The most important thing is to abide by the schedule of taxes.
