Filing business tax returns can feel like a major ordeal, especially if you're not great with paperwork or numbers. Don't assume you have to file in the spring. Here are the basics of business taxes, when to file and other things you should know.
When to file
Failure to file on time results in a late payment penalty plus interest. If you owe taxes, you'll be charged an additional 5% monthly, up to a maximum of 25%, so know when to file and ensure you meet the deadline.
- If you operate on a calendar year (your tax accounting period ends on Dec. 31) and you are a sole proprietor, independent contractor, partnership or Limited Liability Company (LLC), your filing date is April 15.
- For S corporations and C corporations, the filing date is March 15.
- If you run on a fiscal year, (your tax accounting period ends on any other date) your filing date is 2 ½ months after the end of the fiscal year.
If you are unable to file by this date, you can apply for an automatic filing extension. This will avoid late filing fees and penalties, but taxes owed will remain due by the original filing date. To apply for an extension, sole proprietors and contractors complete Form 4868 to extend the filing deadline to October 15. Other businesses complete Form 7004 to extend the date to Sept. 15.
Which forms to file
- Sole proprietors, contractors and LLCs with one owner complete Schedule C, or Schedule C-EZ in addition to Form 1040.
- Partnerships and LLCs with more than one owner complete Form 1065 detailing the income and expenses of the business. A Schedule K-1 is completed for each owner allocating income and deductions between them. Owners then report their share on Form 1040.
- S corporations follow the same pattern, filing Form 1120S instead of Form 1065.
- C corporations file Form 1120, and also pay taxes on the income.
What to Report as Income
Income in the form of money received for goods or services is obvious, but there are other things you must include, such as:
- bad debts recovered;
- interest charged on outstanding accounts;
- sales of assets.
Deductions you can claim
The costs of sales are obvious deductions, as are expenses related to vehicles, travel expenses, equipment and premises rentals. Before filing this year, though, you should consider the may tax breaks included in the Recovery Act 2009 and see if any of the following apply to you:
- You can expense up to $250,000 in one go, plus claim bonus depreciation of 50% of purchases in excess of this on top of regular depreciation. The maximum deduction allowable on a car, light truck, or van is also increased to $8,000.
- If you have had any debt forgiven, instead of this being added as one lump to your taxable income, it could be spread out for up to five years, making managing the tax due on it easier.
- If you averaged $15 or less annual gross receipts in the last three years and this year made a loss, you may be able to claim a tax refund against previous profits for up to five years.
- You may also be able to reduce your estimated taxes to 90% of the preceding year if your income is under $500,000 and more than 50% of it is from your small business.
If you think you could benefit from any of these tax breaks, talk to your accountant before filing.
How & When to pay
Even if you apply for a filing extension, your taxes are still due on the original filing date, and failure to pay them on time attracts a late payment penalty of 0.5 percent per month, until the bill is paid in full. If you think you are going to have difficulty making payments, you may be able to charge the amount to a credit card, or request an instalment agreement.