Depending on your business type, there are different ways to prepare and file your taxes.
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.
Each type of entity requires a different tax form on which you report your business income and expenses. Regardless of the form you use, you generally calculate your taxable business income in similar ways.
Step 1 - Collect your records
Gather all business records. Before filling out any tax form to report your business income, you should have all 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 is much easier than trying to remember 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 allows you to use the Schedule C attachment. However, if you use a corporation or elect to treat your LLC as one, then you must always
prepare a separate corporate tax return on Form 1120.
When you use TurboTax Home & Business (sole proprietors and 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.
Step 3 - Fill out your form
Fill out your Schedule C or Form 1120. 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 all of your financial information.
Schedule C is a simple way for filing business taxes since it is only two pages long and lists all the expenses you can claim. When complete, you just subtract your expenses from your business earnings to arrive at you net profit or loss. You then transfer this number 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 need to file a Form 1120, you must file it 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.