Tax season can feel overwhelming for business owners. Of course, it is important to get everything done correctly in order to protect your business and receive your refunds. But, we know that with the right support, you can be successful.
At Sawyer, our goal is to help children’s activity businesses spend less time on administrative work and more time doing the things that they love: changing the lives of children. In this guide, we will answer frequently asked questions about small business tax preparation and include recommendations for tax software and services as well as tax document checklist.
Small business tax preparation FAQs
- How do taxes work for businesses?
- How does income tax work?
- How to file business taxes
- When are business taxes due?
- How to file self employed taxes
- Best tax software for small businesses
- Tax documents checklist
How do taxes work for businesses?
Taxes are mandatory contributions from individuals and businesses to federal, state, and local government bodies. Taxes often pay for public works (like roads and bridges) as well as public systems (like Social Security and Medicare).
If you run a business, you are responsible for paying taxes for your business as well as yourself. In this article, we will focus on business taxes. However, if you end up working with an accountant or service to help you with your business taxes, they can usually help you with your individual taxes as well.
How does income tax work?
According to USA.gov, “Most businesses must file and pay federal taxes on any income earned or received during the year. Almost every state imposes a business or corporate income tax. However, each state and locality has its own tax laws.” You can learn about the business income tax requirements in your state or territory using their guide.
How to file business taxes
The business taxes that you are required to pay are determined by the type of business, or business structure, that you choose when you are starting.
- Sole proprietorship. A sole proprietor is someone who owns an unincorporated business (not an LLC or corporation) on their own. Use this information from USA.gov to help you file as a sole proprietor.
- Partnership. A partnership is the relationship between two or more people to do trade or business. Partnerships have to file an annual information return to report the income, deductions, gains, losses, etc., from its operations that year, but it does not pay income tax. That is because each partner reports their share of the partnership's income or loss on their personal tax return. Learn more about the tax documents needed for partnerships on this page.
- Corporation. Shareholders for a corporation (also called a C Corporation) exchange money, property, or both, for the corporation's capital stock. A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income but it can also take special deductions. Use this information for guidance on filing for a corporation.
- S Corporation. A special type of corporation, S corporations elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. There are various rules that must be followed in order to classify as an S corporation. Read on USA.gov for more information.
- Limited Liability Company (LLC). An LLC is a business structure allowed by state statute. Depending on decisions made by the LLC and the number of members, the IRS can treat an LLC as either a corporation, partnership, or as part of the LLC’s owner’s tax return. Learn more about taxes for LLCs here.
When are business taxes due?
There are a few steps that businesses need to take in order to properly file their taxes. The date that business taxes are due depends on the business structure. Here is an outline to help small businesses prepare and file their taxes in 2023.
- January 16, 2023. Estimated tax payment due from Q4 2022.
- January 31, 2023. Employers send W-2s forms to employees. Some employers are also required to send certain 1099 forms based on their structure and the type of employees.
- March 15, 2023. Taxes are due for partnerships, LLCs, and S Corporations.
- April 18, 2023. Taxes for C Corporations are due.
How to file self employed taxes
If you run a sole proprietorship business or a partnership, you should file self employed taxes. As a self-employed individual, generally you are required to file an annual return and pay estimated tax quarterly.
According to USA.gov, “Self-employed individuals generally must pay self-employment (SE) tax as well as income tax. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. In general, the wording "self-employment tax" only refers to Social Security and Medicare taxes and not any other tax (like income tax).”
Like individual taxes, self employed taxes are due on April 18, 2023.
Best tax software for small businesses
Many individuals and business owners turn to software for support and guidance when filing taxes. These are the best tax software recommendations for small businesses.
- H&R Block. Small businesses around the country tout H&R Block as one of the best tax software services for small businesses. They can be used for self-employed individuals as well as corporations. Plus, business owners can file their personal taxes at the same time.
- TaxAct. This software is built exclusively for corporations and partnerships. They offer unlimited support from tax professionals, which can be helpful for newer business owners.
- TurboTax. One of the most popular tax software options on the market, TurboTax offers support for all small business types. They have helpful guidance via live support and useful downloadable products.
Tax documents checklist
What do you actually need to file your taxes? This tax documents checklist will help you stay organized so that you can file easily. However, make sure you check federal, state, and local tax guidelines to see if you need additional items based on your location and the type of business that you run.
- Employer ID number (also known as a federal tax ID number)
- Social Security number
- Tax return from previous year
- Accounting documents
- Balance sheet
- Income statements
- Bank deposit slips
- Bank account statements
- Invoices (received and paid)
- Credit card statements
- Vehicle/mileage logs
- Receipts for business expenses (supplies, recurring costs like rent and utilities, marketing and advertising costs, equipment, etc)
- Employee forms (W-9, I-9, W-2, 1099)
- Business tax forms depending on the business structure
- Payroll reports
Looking for more advice on accounting or just running your children’s activity business? Sawyer is the best class registration and management software for children’s activity providers. Plus, we offer lots of free resources for support as well!
With our suite of tools, like custom forms to record allergies and t-shirt sizes, flexible payment options like gift cards and installment plans, and seamless scheduling and registration on any device, Sawyer saves business owners 28 hours per month. If you are ready to spend less time on admin and more time doing more of what you love, see how Sawyer can help with a free trial or demo.