Tax season comes around every year and, despite its inevitability, handling it all remains a challenge. If you’re a small business owner, filing business taxes can be intimidating. With dozens of numbered forms, complex accounting software, and confusing terminology, familiarizing yourself with the process can be overwhelming. On top of that, you must comply with strict, federally mandated deadlines to avoid late penalties. Tax time is stressful, to say the least.
We’re here to help you ease into the 2020 tax season. We created a streamlined guide to the 30 most important small business tax forms, terms, and dates you need to know to file accurately and efficiently. In this article we’ll translate even the most convoluted government tax talk into digestible information that will keep your business running smoothly all year long.
The IRS offers a number of forms that help small businesses file taxes and make deductions. Knowing which ones you need will go a long way towards helping you stay organized and filing your taxes on time.
What it is: Form 940 reports annual Federal Unemployment Tax Act (FUTA) tax.
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When employees are let go for reasons beyond their control, they receive unemployment insurance. As an employer, you pay into this program and Form 940 determines the amount you contribute. You only need to submit Form 940 once a year, but you need to pay your FUTA tax payments quarterly.
Due date: February 1, 2021
What it is: Form 941, also known as Schedule B, reports how much federal income tax and payroll taxes you’ve withheld from employee paychecks. Form 941 must be filed on a quarterly basis. This form is only required for businesses with employees.
- First quarter: April 30, 2021
- Second quarter: July 30, 2021
- Third quarter: October 30, 2021
- Fourth quarter: January 30, 2022
What it is: Send Form 1099 to your independent contractors; this form reports how much you paid them for their services within the tax year.
Due date: February 1, 2021
What it is: Send Form W2 to each of your employees; this form reports their annual wages and the amount of taxes withheld from their paychecks. As a small business owner, you’re responsible for issuing W2 forms to your employees no later than January 31 and submitting copies to the IRS. (QuickBooks for Windows or Quickbooks for Mac customers can order printed W2 kits to send to their employees.)
Due date: February 1, 2021
What it is: Your employees fill out Form W-4, which reports how much tax you—the employer—should withhold from their paycheck. Your employees may claim allowances for spouses or dependents on Form W-4. Employees may also instruct you to withhold more taxes from their pay if they work several jobs or if their spouse earns income, too.
Due date: February 15, 2021
What it is: Form 1040, also known as Schedule C, reports how much money your business made or lost in a given tax year. If your business is classified as a sole proprietorship, you need to file Form 1040 each year.
Think of it like this: Form 1099 reports how much each of your independent contractors made, and a W-2 form reports how much each of your employees made. The Schedule C form exists so you can report how much your business made, too.
Due date: April 15, 2020
What it is: Form 1065, also known as the U.S. Return of Partnership Income, declares business income or loss. If your business is a partnership or a limited liability company (LLC), you’ll file Form 1065 each year to declare profits, losses, deductions, and credits.
Due date: March 15, 2021
What it is: Form 1120, also referred to as the U.S. Corporation Income Tax Return, reports corporate income or losses. If your business is classified as a regular corporation, you are required to file Form 1120 each year.
Due date: The 15th day of the fourth month after the end of the corporation’s tax year
What it is: Schedule SE calculates the Social Security and Medicare tax (SE tax) that self-employed individuals need to pay. If you’re self-employed, you need to file Schedule SE.
Due date: April 15, 2021
What it is: Form 8829, also known as Expenses for Business Use of Your Home, is used to deduct eligible living costs like rent and utilities as business expenses.
Business owners who work from home either partially or full-time will find Form 8829 helpful for identifying which expenses qualify as tax deductible. The IRS is very specific about which costs can be deducted and what constitutes a workspace. This means it’s important to do your research or consult a tax professional before claiming deductions.
Due date: April 15, 2021
What it is: New businesses use Form SS-4 to apply for an employer identification number (EIN). An EIN is a nine-digit number that the government assigns to employers, sole proprietors, corporations, and partnerships for tax filing and reporting purposes. It functions as a unique identification number for your business, and Form SS-4 is how you get your hands on one.
Feel like you need to learn an entirely new language just to do your taxes? We can help by explaining a few of the common tax terms you’re likely to encounter.
When you’re an employee, you have taxes withheld from each paycheck. As a business taxpayer, you’re the one responsible for calculating and paying taxes for your business. This amount is called estimated tax because it can be difficult to predict revenue with 100% accuracy. You can find out more about estimated tax, including how to calculate the right amount to pay, in our Guide to Understanding Quarterly Taxes.
Payroll tax actually refers to two figures: the tax deducted from an employee’s wages, and the taxes the employer pays to the government based on those wages. Payroll tax is usually calculated as a percentage of total employee salaries. The government uses this tax to pay for things like income tax, Medicare, and Social Security.
A tax deduction lowers your taxable income, which means it also lowers the amount of tax you have to pay. As a small business owner, you can often deduct home office expenses or vehicle expenses if you use your car for work purposes.
An exemption also reduces your taxable income. However, unlike a deduction, an exemption refers to a specific amount preset by the government, rather than an amount that results from expenses. The dependency exemption for children or a spouse is a common exemption.
Depreciation refers to the loss of an item’s value over the course of its life. For example, let’s say you bought an all-in-one printer three years ago. Today, it is worth less than its original purchase price due to its age, daily wear, and the possibility that it is now obsolete. Depreciation allows your business to write off the loss of that value.
Tax credits directly reduce the amount of tax due, dollar for dollar. Tax credits are some of the best options small business owners have to save money on their tax bill.
There are several ways to structure a business: as a sole proprietorship, a C corporation, an S corporation, or a limited liability company (LLC). Each structure offers different advantages and it’s important to choose the one that best suits the needs of your business.
Wondering how to choose? Our Guide to Business Structures explains the differences between these structures and helps you decide which is the right one for you.
Filing for an extension means that the IRS will grant an additional six months to complete and file your business taxes for a given year. In order to receive an extension, however, you must submit an extension application (Form 7004) before your original tax due date.
Audits occur when the IRS wants to double-check your records and ensure that your tax return was prepared properly. When your records are in order and you have all supporting documentation, audits are nothing to worry about. If there are discrepancies, the auditor will recommend a reassessment.
Accrual and Cash Methods
Accrual and cash accounting are two different types of accounting methods. Accrual accounting is more common; this method records income and expenses when they’re earned. The cash method only inputs these amounts when the money is received or paid. With the accrual method, you record income when you invoice a client. With the cash method, you only record it when the client has actually paid.
It’s not just your mom’s birthday you need to circle on the calendar anymore; small businesses owners have many dates to remember. Here are the can’t-miss-it 2021 tax dates that every small business taxpayer should know:
- January 15, 2021: Deadline to pay the fourth-quarter estimated tax payment for tax year 2020
- January 31, 2021: Deadline for submitting wage statements and forms for independent contractors
- Feb. 1, 2021: Deadline for employers to mail out W-2 Forms to their employees; also the deadline for businesses to provide Form 1099 to contractors
- February 28, 2021: Deadline for paper-filing Form 1099-MISC documents that don’t have claimed amounts in Box 7
- March 1, 2021: Deadline for businesses to mail Form 1099 and Form 1096
- March 31, 2021: Deadline for electronically filing Form 1097, Form 1098, Form 1099, Form 3921, Form 3922, and Form W-2G
- March 15, 2021: Deadline for filing business return Forms 1120, 1120-A, and 1120-S for partnerships, multiple LLCs, and S Corporations
- March 31, 2021: Deadline for businesses to electronically file Form 1099 and Form 1096
- April 15, 2021: Deadline for filing business returns for sole proprietorships and single-member LLCs; also the deadline for first-quarter estimated tax payments for the 2021 tax year
- June 15, 2021: Deadline for second-quarter estimated tax payments for the 2021 tax year
- September 15, 2021: Deadline for third-quarter estimated tax payments for the 2021 tax year
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