Business Tax Filing Status: Everything You Need to Know
Your business tax filing status determines which tax forms you have to fill out and how many claims and deductions you can take.3 min read updated on February 01, 2023
Your business tax filing status is important for your finances and patience. Your status determines which tax forms you have to fill out and how many claims and deductions you can take. People stress out over receipts and hope they are doing their taxes correctly so as to not welcome an audit.
April 17th is the date taxes are due for LLCs, partnerships, and sole proprietorships, and March 17th is the corporation due date. Business owners have to make sure to correctly file their taxes and have receipts in hand in case of a possible audit.
Business Tax Filing: Know Your Forms
The first thing to know is which tax form you have to use. The exact forms necessary for your business depends on the structure of the business.
- On Form 1065, those who have a partnership report their expenses, losses, and income.
- For a sole proprietor, income and expenses of a business are reported on Schedule C in your personal income tax form.
- Those who are part of an LLC defined as a sole proprietorship will also use Schedule C.
- If your LLC is treated as a corporation or you own a corporation, prepare the Form 1120. Form 1120S is used if you have S Corporation status.
- The IRS provides useful information to guide you in the correct forms for your business type.
Tax Filing Tips: Home Office Tax Deduction
If you're entitled to a home office deduction, you should do it as it can add up to thousands in deductions. To qualify, there has to be a dedicated area in the home that's used for the business and nothing else. Now the calculations have gotten much simpler than they were in the past. You can choose to deduct $5 per square foot of the office space with a $1,500 cap.
This simpler method can give you a smaller deduction, so many do both calculations to see which is better. However, if you haven't kept track of expenses and don't have the documents that record this, it's better to take the simpler version.
There are differences between equipment and supplies. Supplies include things that you used in the year including paper, ink, and pens. Equipment is stuff that normally lasts more than one year such as a laptop, furniture, and servers. In Section 179, you can write off the entire cost of the equipment for up to $500,000.
Tax Filing Tips: Travel and Entertainment Deduction
If you drove and/or flew to meet with clients or to a tradeshow you can deduct some of the travel expenses. You can also deduct 50 percent of the bill if you paid for a client or potential client's entertainment as long as business was discussed.
Make sure to write on the receipt who you met and what was discussed. If your main purpose of a trip is business, you can deduct up to 100 percent. If there's some relaxing it's ok, but the majority of the trip has to be for business.
Business owners should take into account other expenses as these add up in the year. For instance, any courses you bought to improve your skills or fees to a membership. Credit interest is also completely deductible. Expenses like your internet bill, cell phone plans, and web hosting are also deductible.
Filing an Extension
You can file for an extension if you need more time to complete your taxes without feeling rushed. If you think you'll owe money you can estimate what's owed and send in payment. Otherwise, there will be interest and penalties to deal with.
Online tax services are known for allowing you to file your taxes for free, as well as state taxes sometimes, if your income is less than $66,000. You can check on the IRS website for options. There's also an app called IRS2Go to help you find free tax filing services, make a payment, or check your refund status.
Even if you make over $66,000, you can still file for free, but you have to use the Free File Fillable Forms, which are recommended for those who know how to prepare their own taxes.
If you need help with a business tax filing status, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.