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small business tax checklist
12 min read

Your Small Business Tax Preparation Checklist

According to the Internal Revenue Service (IRS), there are four common types of errors that plague small businesses: underpaying estimated taxes, not depositing employment taxes properly, filing tax returns after the deadline, and muddying the line between business and personal expenses. Small business owners that try to remain diligent about the recordkeeping practices, calendars, and responsibilities as an employer can still make small mistakes that lead to hefty penalties and fees, especially when the deadlines for filing taxes are looming. Use this quick tax preparation tax list to quickly refresh your understanding of what tax forms you need to fill out, the documentation you should have available, and other helpful tips. 

Understand the Types of Business Taxes

When you're a small business owner, your taxes quickly become more complex. Not only are you responsible for your own personal income taxes, but you need to file taxes as your business and stay on top of unique quarterly and employer payment obligations. Here are some of the most common types of taxes you may encounter:

1. Income Tax

This is separate from what you, a private individual, may file or consider to be a personal income tax (though the lines can blur if you're a sole proprietor with a pass-through structure). Not only do you need to file an annual income tax return, but your business is also expected to make quarterly estimated payments throughout the year, rather than paying your entire tax bill all at once.

2. Estimated Taxes

Your quarterly estimated tax payments are based on what you made over the quarter. Payments don't have to be exact (though they should be reasonable), and you'll pay the remainder when filing annual taxes. The quarterly estimated tax deadlines for 2022 are:

  •  April 18
  • June 15
  • September 15
  • January 17, 2023

3. Self-Employment Taxes

Generally, if you earned more than $400 in net income, you are responsible for filing your taxes and paying the self-employment tax. This tax rate is 15.3%, and it covers your social security (12.4%) and Medicare (2.9%) tax obligations.

4. Employment (Payroll) Taxes

This tax applies if you have employees. You have the obligation of withholding and paying social security and Medicare taxes for them, as well as federal income tax withholding and federal unemployment (FUTA) taxes.

5. Excise Taxes

Excise taxes also only apply to certain types of small businesses. You may need to pay these taxes if you manufacture specific types of goods or use certain types of equipment in your business operations, or conduct specific types of business services. Consult with a tax attorney or accountant to determine if these taxes apply to you.

Utilize the Correct Tax Forms

Now that you know what types of taxes you may be responsible for, it's time to determine which forms you'll need to file in order to report your business income and tax obligations. The IRS views filing taxes and paying taxes as two separate actions. Consider these commonly used tax forms your small business's needs:

Sole Proprietorship: Schedule C

Schedule C, also called Form 1040, is the primary tax form you'll complete to report your business income (or your business losses). This form is used by sole proprietors for a traditional business that typically operates as the main source of income. Self-employed individuals generally file a Schedule C, especially if their business structure is not complicated.

Partnership: Form 1065 and Schedule K-1

This form is specifically for filing a return of partnership income. This form is slightly more completed, and filers need to complete two documents:

  1. While partnerships "pass-through" their taxes to the individual partners based on their agreement, the entity as a whole must file a Form 1065 that reports all income and losses for the entity.
  2. Each partner must have a Schedule K-1 submitted. It reports profits, losses, credits, and deductions that the individual partnership receives.

Corporation: Form 1120

This tax form is used by both C corporations and LLCs that want to file as a corporation. A business will use Form 1120 to report income and gains, losses, deductions, and credits. This form also helps users determine the tax obligation of the corporation.

S Corps: Form 1120-S

Domestic S corporations (which are entitled to unique tax benefits compared to C corporations) file the modified Form 1120-S. It plays the same role as Form 1120 for corporations. 

Keep Track of Important Tax Dates and Deadlines 

Both filing and paying taxes after their associated deadlines can make your business incur large penalties and fees. Keep these important dates in mind:

  • Deadline for 2021 taxes (for sole proprietorships, C corporations, and most other small businesses): April 18, 2022
  • Deadline for 2021 taxes (for S corporations and partnerships): March 15, 2022
  • Quarterly estimated tax deadlines for 2022:
    •  April 18
    • June 15
    • September 15
    • January 17, 2023

Organize Essential Documentation

Before you sit down to file your taxes, we recommend gathering all of the documentation you need first. This can minimize frustrations and cut down on potential errors and omissions. Make sure these documents and information are available:

  1. Federal Tax ID Number
  2. Social Security Number
  3. Balance Sheet and Income Statement
  4. Invoice Received and Paid
  5. Credit Card Statements
  6. Receipts Grouped
  7. Insurance Details
  8. Employment Tax Documentation

Research Tax Deductions

Some common forms of tax deductions that small businesses should consider include:

  • Rent: Your business can deduct rental payments for your leases and equipment.
  • Interest: If you paid or accrued interest expenses, you may be able to deduct them.
  • Home Office Expenses: This deduction applies to any business supplies or equipment you purchase solely for your business.
  • Legal Services: Necessary costs for running your business may include court costs and attorney fees.
  • Mileage: Miles driven for business purposes can be deducted at a standard rate per mile.
  • Depreciation: You can deduct the reduced value of a business asset over time.

Carefully noting deductions and working with an experienced tax professional can help you reduce your tax burdens and help your business grow stronger.

Schwartz & Associates Is Here to Help With Your Small Business Taxes

Filing and paying your business taxes correctly, without under- or over-paying and making filing errors, is challenging. If you're worried about hitting the mark, talk to a local accounting service that specializes in small business taxes. At Schwartz & Associates, we're here to help you file and pay your taxes correctly and create tax strategies for the entire year. Contact us today to schedule a consultation.

 

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