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How to File Federal Income Taxes for Small Businesses

Updated for Tax Year 2022 • October 18, 2022 10:03 AM


OVERVIEW

Depending on your business type, there are different ways to prepare and file your taxes.


For information on the third coronavirus relief package, please visit our “American Rescue Plan: What Does it Mean for You and a Third Stimulus Check” blog post.


 

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Key Takeaways

• Before filling out any tax form to report your business income, gather all your records—paper or electronic—that pertain to your business earnings and expenses.

• If you run your business as a sole proprietorship, or as an LLC and you are the sole owner, you can report your business income and expenses on Schedule C along with your personal income tax return.

• If you run your business as a corporation, or decide to treat your LLC as one, then you need to prepare a separate corporate tax return on Form 1120 or Form 1120S if you are an S-Corp, or Form 1065 for a partnership and/or multi-member LLC.

When it’s time to file a federal income tax return for your small business, there are various ways you can do it, depending on whether you run the business as a sole proprietorship or use a legal entity such as an LLC or corporation.

Different types of business entities can require a different set of tax forms for reporting your business income and expenses. Regardless of the form you use, you generally calculate your taxable business income in similar ways.

TurboTax has two products to serve business owners—TurboTax Home & Business is designed for sole proprietors and 1099 contractors, while TurboTax Business helps you prepare taxes for corporations, partnerships and LLCs.

Step 1—Collect your records

Gather all business records. Before filling out any tax forms, you should have all of your records in front of you that report your business earnings and expenses.

If you use a computer program or a spreadsheet to organize and keep track of all transactions during the year, calculating your income and deductions can be much easier than trying to piece together the information for every sale and expenditure that occurred during the year. TurboTax works with programs like QuickBooks and Quicken, so you can import information directly into your tax return.

Step 2—Find the right form

Determine the correct IRS tax form. You always need to report your business earnings to the IRS and pay tax on them, but choosing the right form to report earnings on depends on how you operate your business.

Many small business owners use a sole proprietorship which allows them to report all of their business income and expenses on a Schedule C attachment to their personal income tax return. If you run the business as an LLC and you are the sole owner, the IRS also considers you to be a sole proprietorship that also uses the Schedule C attachment. However, if your business is organized as a corporation or you elect to treat your LLC as one, then you need prepare a separate corporate tax return using Form 1120 for C-Corporations or Form 1120S for S-Corporations. Multi-member LLCs are considered partnerships and typically file Form 1065.

When you use TurboTax Home & Business (for sole proprietors and independent contractors) or TurboTax Business (corporations, LLCs and partnerships), you just need to answer simple questions about your business income and expenses, and we’ll fill in all the right forms for you.


 

TurboTax Tip: When you use a Schedule C with Form 1040, or file Form 1120 for a corporation, you usually need to file your return by the April 15 deadline. If you use Form 1120S, you must file it by the 15th day of the third month following the close of the tax year, which for most S-Corps is March 15.


 

Step 3—Fill out your form

Fill out your Schedule C or Form 1120 or 1120-S. If you will be reporting your business earnings on Schedule C, you can search the IRS website for a copy or use TurboTax to generate the form for you after you input your financial information.

Schedule C is a simple way for filing business taxes since it is only two pages long. When complete, you just subtract your expenses from your business earnings to arrive at you net profit or loss. You then transfer this amount to your personal income tax form and include it with all other personal income tax items.

However, if you use a Form 1120, you calculate your taxable business income in the same way, but the form requires more details that may not always apply to a small business. The biggest disadvantage of filing a Form 1120 is that it is separate from your personal income tax return.

Step 4—Pay attention to deadlines

Be aware of different filing deadlines. When you use a Schedule C, it becomes part of your Form 1040 and therefore, no separate filing deadlines apply. It is generally subject to the same April 15 deadline.

If you are taxed as a C-Corp, you need to file a Form 1120, you must file it by the 15th day of the forth month following the close of the tax year, which for most taxpayers is April 15 or the next business day if it falls on a weekend or holiday. If you are taxed as an S-Corp or as a partnership, you need to file a Form 1120S or form 1065. These forms are due by the 15th day of the third month following the close of the tax year, which for most taxpayers is March 15. You cannot send this form to the IRS with your personal income tax return.

To understand more about tax deductions, visit our Self-Employed Tax Deduction Calculator for Sole Proprietors.

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