Business Tax Return in the US: How to file a Business Tax Return with Simplicity
A business tax return is mandated by the IRS for income tax returns. Companies can report income and expenditure of the business for the financial year to avoid penalties and scrutinies for a business. Business tax filing is part of compliance and fiduciary responsibilities of a company. It can have a significant repercussion on the governance and operations of a company.
Good record keeping helps a business state its assets, liabilities, income and expenditures with accuracy. Correct income tax assessment has a direct bearing on the cash flow, underestimating taxes can increase liabilities for a business.
Record Keeping
Before you file taxes, you need to organise the records for all business transactions in the financial year. You need to organise information according to your business registration. You will need a Tax Identification Number (TIN) and financial statements for filing taxes.
The financial reports and transactions can be prepared by bookkeeping software. It needs to categorize all business transactions and prepare the required reports for business tax filing. You will need organised records for all business transactions, should it be needed for audit purposes. The following information is needed for preparing the financial reports:
i) Income & Expenses
The income statement outlines all gross receipts from the sales of products and services for a financial year. All incomes from investments and other sources must be recorded for preparing the Profit & Loss Statement for the financial year.
The income for the financial years also includes the accounts receivables for a business, unless cash based accounting is chosen. The rental incomes, refunds, interest income etc. also need to be added to the income for the covering period.
The expenses include all the spending involved in running your business. These include the payroll expenses, cost of goods sold, interest paid, employee benefits, operations, administrative expenses, marketing, supplies, travel etc.
You need to have a record of all your business transactions for audit purposes to back your claims.
ii) Assets & Liabilities
The assets and liabilities are crucial for financial reporting and calculation of the taxes. A business needs to prepare a comprehensive tally of all its fixed assets like land and buildings, furniture & fittings, computer equipment, ACs, motor vehicles, and other fixed assets.
The right depreciation type is chosen to calculate the fair value of the fixed assets. This is one of the pivotal aspects as it affects the income tax for a business. The depreciation of fixed assets reduces the income tax needed to be paid by the business. The inventories, short-term investments and all work in progress are reported as short-term assets for the business.
The fixed assets are indicators of the net worth of a business. The liabilities include the loans taken, pending payments to vendors or employees, or any other debts, bonds issued by the business. The networth of a business is calculated as the difference between its assets and liabilities.
The financial reports must be backed with records of purchases, payments made and documents to authorise the transactions for tax purpose. Accounting software organizes records for business transactions and maintains a trail of documents as per the IRS needs.
Estimate Taxes
Business taxes need to be assessed accurately for good cash flow and governance. Companies need to accurately determine taxes for income, employees, part-time workers, supplies, services, property tax, etc.
The income taxes can be paid as you receive income during the year. The employee taxes are also withheld and deposited with the authorities. Paying estimated taxes helps companies plan their taxes better, it saves penalties and reduces cash flow burden at the last moment.
The online accounting software can be used to prepare taxes and file them as per the latest IRS calendar. If you are not required to make any tax payments, you can get refunds for the prepaid taxes from the IRS, when you submit the tax returns on time.
Business Structure
The type of your business structure determines its tax outgo. For e.g. businesses need to file different types of tax forms and reports as per the registration of their business. The following is an outline of the structure and its reporting requirements:
i) Sole Proprietorships
The sole proprietor business needs to file Schedule C for tax return, Profit or Loss From Business. For a sole proprietor, individuals can attach Schedule C for their personal income tax return.
ii) Partnerships
For a partnership firm, businesses need to file Form 1065. IRS Form 1065 is an information return. It is required to be filed by business & all members of the partnership alongside 1040 Form.
The business partnership also requires Schedule K-1. It fills out information for Partner’s Share of Income, credits, deductions, etc., for all partners. Partners can use the Schedule K-1 and fill out information in their individual tax returns.
iii) Corporations
Companies can be registered as C or S corporations. Depending on the type of their incorporation, they can file returns using different forms. For e.g., C Corp tax use Form 1120, to file their company tax returns. The S Corp tax return uses Form 1120-S for filing tax returns.
iv) Limited liability companies
When incorporating an LLC, owners can choose if they want the LLC to be taxed as a sole proprietor, a partnership or a corporation. If LLC is taxed as a corporation, it must use Form 1120 for business returns. Otherwise, single-member LLCs file Schedule C, and multi-member LLCs file Form 1065.
Filing Methods
Once the information for the business tax returns is completed, it needs to be submitted to the IRS. The filing completes the tax returns for the business. You can file the return for your business using hard copies using mail or the IRS e-File system. Businesses can also make tax payments using the IRS payment system.
Your accounting software can help your business with all the required information for filing taxes. Tax consultants and CPAs can be consulted for typical returns and hand holding support. Businesses that are well managed stick to the deadlines and file on time avoiding last day rush and penalties. Online accounting software can help companies prepare tax records and e-file taxes for business returns. On time business tax return helps companies stay compliant, proactive and organise financial records.
Kreyon Systems offers end-to-end accounting software solutions. The solutions are geared for bookkeeping automation, regulatory compliance & financial reporting. If you need any assistance, please get in touch.