How to File Small-Business Taxes in 2023
Filing small business taxes can be overwhelming. There is a lot to understand from filing deadlines to the difference between quarterly and annual taxes and all the way down to what you can and cannot deduct.
Before we dive into our four-step guide on how to file business taxes, let’s get the most important bit out of the way—tax deadlines. For quarterly taxes, you have to file by April 15, June 15, Sept. 15 and Jan. 15 each year. For annual, the deadline is March 15 for partnerships, multi-member LLCs, and S corporations. Taxes are due April 18, 2023, for everyone else.
Now, let’s dig into all of the other need-to-know items.
How to file small business taxes
1. Gather your financial records
Before you can file taxes, you’ll need to collect all your business’ financial records. Specifically, gather the following documents:
- Accounting records
- Last year’s business tax return
- Your taxpayer identification number
- Bank and credit card statements
If you use accounting software, these documents should be right at your fingertips. (If you don’t, we highly recommend trying out accounting software if only to make next year’s tax season easier.)
Pro tip: Keep all of your documents, receipts and insurance records in one spot. Buy an accordion folder or a file cabinet and keep your documents there. Knowing that you have your documents together can help ease your stress during tax season.
- Income statements show your gross and net income through the entire tax year. This statement will determine your taxable income after you’ve calculated your deductions.
- Balance sheets show your equity, assets, and liabilities. It will play an important role in filing your business tax return.
- Payroll documents provide exact insights into how much you paid employees, contractors, and yourself over the previous tax year.
If you use small business accounting software, these documents will be easy to generate. If you don’t use software, try downloading a template to use. Alternatively, you can sign up for free accounting software to get all your accounts in order before filing taxes.
Last year's business tax return
Information you need to file this year’s taxes will already be on your tax return from the previous year. If you use tax filing software, the program saves your tax information for faster, easier filing next year.
Skip this step if this is your first time filing taxes for your brand new business.
Taxpayer identification number
Your taxpayer identification number (TIN) is your unique number that the government uses to identify your business. If you are a sole proprietor, then your TIN will be your social security number. If you are a registered business owner, in either a corporation or a partnership, then your TIN will be your employer identification number (EIN).
If you don’t have one, getting a tax ID is simple.
Bank and credit card statements
Every small business owner should have a separate bank account and credit card for their business. There are many great business banks that specialize in serving the needs of small businesses. At the end of each calendar year, your bank can generate a year-end report that shows you exactly what you’ve spent throughout the year. You can use this report to double-check your own financial records and ensure you’re filing the right amount in taxes.
2. Decide if you are going to use tax software
If your business has a full- or part-time accountant, they can file business taxes for you. If you don’t have an accountant, you can file with tax software or with the help of a tax professional. Both options can be cost effective.
As for actually paying your taxes––not just filing the paperwork––your accountant or tax software can submit your payment. If you’re paying quarterly or filing on your own, the IRS’ e-payment system is the quickest (and most secure) way to pay.
3. Calculate your tax deductions
Paying taxes is painful, but tax deductions can soften the blow. What you can deduct depends on the type of business you run, though there are a few deductions nearly every business owner can claim every year. IRS Publication 535 details business deductions and explains how to calculate them.
Business owners can deduct certain expenses related to the cost of owning and operating a vehicle for business purposes. While you can’t usually deduct the cost of commuting from home to work and back again, you can claim deductions based on mileage or on actual car expenses (gas, repairs, insurance, registration, etc.).
For the 2022 tax year, the mileage reimbursement rate is 58.5 and 62.5 cents a mile. If you didn’t track the exact number of miles you traveled for work last year, you’ll need to calculate actual car expenses instead. Where the IRS is concerned, you can’t just estimate how many miles you traveled for work—you need a firm, accurate number backed up with itemized receipts. IRS Publication 463 explains more about how to calculate and claim car expenses on your taxes.
If you traveled a lot this year but didn’t track your mileage, accounting software can get you in shape for next year. Some self-employment accounting software, like QuickBooks Online Self-Employed, tracks mileage for you. Some mileage-tracking apps and software also compile IRS-friendly reports to make reimbursement practically painless.
Typically, if you rent an office space, you can deduct your rent payments. Similarly, if you have an in-home office, you can claim a deduction. However, the portion of your home you deduct must be used only for business purposes. If the room in your home serves any other purpose, you cannot claim it as a tax deduction. For instance, if you’re also using that home office to store your workout equipment, you can’t count it as a deduction.
Additionally, to deduct home office expenses, your home office must be either your business’ main location or where you meet with clients. If you work from home every few days and in an office the rest of the time, you can’t claim a home office deduction.
To calculate your home office deduction, you can use either the simplified method or regular method. For the first, you’ll deduct $5 for every square foot of your office (for a maximum of 300 square feet). For the second, you’ll determine which percentage of your house you use for office space. It’s a little tricky, so check out IRS Publication 587 for more details.
In general, you can deduct 100% of the premiums on your small business insurance coverage.
4. Determine which business tax forms you need for your business entity
Small business owners can register their business as a sole proprietorship, partnership, C corporation, S corporation, or limited liability company (LLC). Each entity pays taxes differently and uses different forms to file.
A sole proprietor is an exclusive, individual business owner. Sole proprietors are responsible for business debts, but they’re also entitled to all of their business’ profits. If you’re a freelancer or contract worker, you will file taxes as a sole proprietor.
Legally, sole proprietors aren’t viewed as distinct from their business. This means you’ll file an individual income tax form, Form 1040. You’ll also attach a Schedule C form, which reports on your business’ profits and loss over the last year.
This in-depth guide can help you file taxes if you’re self-employed.
A partnership is a business with multiple owners. The partnership itself doesn’t pay income tax—instead, the company profits go to each partner, and each partner then reports the income on their individual tax return using Form 1040. You’ll also submit a Schedule K-1, which lists your individual share of the partnership’s dividends and liabilities.
Note that Schedule K-1 is a part of Form 1065, which is the form that reports on your partnership’s profits and losses. While you need to file Schedule K-1 alongside your individual tax return, Form 1065 should be filed on behalf of the partnership as a whole. Typically, your partnership’s accountant will file Form 1065. If you don’t have an accountant, we recommend consulting one around tax time so you can ensure you’ve filed all the right tax forms.
If your partnership employs additional staff, you’ll also use Form 941 to cover quarterly employment taxes (such as Social Security, Medicare, and income tax withholding) and Form 940 to cover federal unemployment tax (FUTA).
C corporations and S corporations
Small business owners can structure their business as a corporation if they want corporate taxation rates. The legal system recognizes a corporation as its own legal entity—meaning that, legally speaking, it’s independent from the owners. So if the business is sued, the owners’ assets aren’t on the line.
Just like partnerships, corporations are also responsible for filing quarterly employment taxes. Use Form 941 to pay the employer portion of your staff’s Social Security and Medicare taxes, as well as the income tax withholdings from each employee’s paycheck. Use Form 940 to file your federal unemployment (FUTA) tax. This guide explains what you need to fill out Form 940 if you need some guidance.
Limited liability companies (LLCs)
Just like a corporation, an LLC is a separate and distinct legal entity from its owner or owners. Some business owners opt for this set up so that they aren’t personally liable for any business debts if the LLC struggles financially.
Depending on how you set up your LLC with the IRS, you might file business taxes as a corporation, a partnership, or a single-member LLC. An LLC taxed as a corporation uses Form 1120 to file taxes.
A single-member LLC pays taxes as if it were a sole proprietorship, meaning you use Schedule C to account for your tax payment and attach it to Form 1040.
5. Know your tax deadlines
No one wants to pay penalties to the IRS for missing deadlines, so it’s important you meet yours. While it shouldn’t take long to actually file your taxes, give yourself a week or two before the tax deadlines to make sure you have all your records in order.
Deadlines for quarterly taxes
If you anticipate owing $1,000 or more on annual taxes, you are required to pay estimated taxes quarterly and file a tax return annually. This includes freelancers and many other sole proprietors.
Estimated quarterly taxes are generally due:
- April 15
- June 15
- Sept. 15
- Jan. 15
Usually, April 15 is both the date your estimated taxes for the previous quarter are due and the day your annual tax return and any outstanding tax is due.
Deadlines for annual taxes
Most small-business owners—including members of partnerships, S corporations, and C corporations—will file annual taxes. The exact due date depends on the type of business you own:
- March 15 is the tax-filing deadline for partnerships, multi-member LLCs, and S corporations
- April 15 is the tax-filing deadline for sole proprietors, single-member LLCs, and C corporations (that end their fiscal year on Dec. 31). That date changes sometimes if it falls over a weekend or holiday. In 2023, the deadline is April 18.
If you want extra guidance on when your taxes are due, we recommend consulting with an accountant.
If your C corporation ends its fiscal year on a date other than Dec. 31, business taxes are due four months after the end of your fiscal year.
Get your maximum refund for your small business with FreeTaxUSA.
Tax season is undeniably stressful. But here’s the bright side. Once you’ve checked off these five steps and filed your business taxes, you don’t need to worry about filing again for an entire year.
The bottom line: Keep all your documents in an easy-to-remember space and use tax software. Don’t do this with a pencil and paper. It will get too complicated and messy. Remember, you’ve got this. Every American every year manages to get through it. You can too.
Filing small business taxes FAQ
If you make $400 or more, you have to file a federal income tax return. The IRS establishes that even if your net earnings are less than $400, you will still have to file an income tax return based on whether you meet a filing requirement listed on Form 1040.
A good rule of thumb is to save 30% of your net business income for taxes. This should cover both your federal and state taxes.
Long story short, small businesses cannot avoid paying taxes. Small business owners can decrease their payment by taking advantage of deductions. Keep all receipts and documents that might help in providing justification for these deductions and you should be good to go!