Small Business Tax Preparation Checklist
Tax season can be challenging and overwhelming for a small business owner. To stay on top of taxes, you need to be organized. There are lots of forms, deadlines, and deductions to think about. We made a 2024 Small Business Tax Prep Checklist to help you with tax preparation.
Use this checklist to file your small business taxes accurately and on time. It includes everything you need – documents and information. Use this list to reduce stress, increase deductions, and follow IRS rules. In 2024, small business tax prep is crucial. Here’s a checklist to help you confidently manage your taxes.
1. Understand the types of business taxes
All businesses are required to pay various taxes to the IRS and the state. It is nice to understand the types of business taxes. Small business owners must fulfill their federal and state tax duties. Your business may owe five types of taxes, whether run as a sole proprietorship, partnership, S corporation, or C corporation.
Income tax
Income taxes are based on income generated by a business and are paid on both a federal and state level. Your tax obligations for a small business depend on its registered structure or entity type.
C corporations pay taxes twice at the company level and when individuals get a share. C corporations pay taxes based on the business’s net income at the entity level. If the C Corporation pays dividends, it will be taxed on the individual’s personal income tax return.
The current federal income tax rate is 21% for C corporations.
Other kinds of businesses, like sole proprietorships, partnerships, and S corporations, pay taxes on an individual level. However, it’s different for C corporations. Sole proprietorships go on your 1040 tax form. But partnerships and S Corporations must file tax returns to show how much money the business made or lost.
Flow-through entities report income at the entity level and then on Schedule K-1 for individuals.
The C Corporation pays taxes, while the Partnership and S Corporation do not pay federal taxes. Business owners are in charge of reporting their business’s money and costs on their tax forms. Income taxes are then paid based on the tax bracket you fall into.
A business’ state income tax varies from state to state and potentially from city to city. If your business is in different areas and meets economic nexus, you must file taxes in various state and local locations. The rules for economic nexus can be confusing. You should talk to your tax adviser if you need clarification on whether they apply to you.
Estimated taxes
Businesses must pay taxes every three months, which are called estimated taxes. C corporations that expect to owe more than $500 must pay estimated taxes. A business owner must pay taxes, and personal tax returns might owe more than $500.
The estimated tax deadlines for 2024 are as follows:
- January 15, 2024: 2023 fourth quarter estimated taxes due.
- April 15, 2023: 2024 first quarter estimated taxes due.
- June 15, 2023: 2024 second quarter estimated taxes due.
- September 15, 2024: third quarter estimated taxes due.
- January 15, 2025: 2024 4th quarter estimated taxes due.
When a holiday or weekend falls on a tax due date, taxes are due the following business day.
Self-employment taxes
If you have a business on your own or with a partner and actively work on it, you must pay self-employment taxes. Self-employed people have to pay a tax like the Social Security and Medicare tax. The tax rate for self-employed people in 2024 will be 15.3%. This includes two parts: Social Security tax (12.4%) and Medicare tax (2.9
You report and pay self-employment taxes with your tax return on Schedule SE.
Employment taxes
If you have employees, you pay employment taxes. Employment taxes include:
- Social Security and Medicare taxes.
- Federal and state income tax withholding.
- Federal unemployment tax.
Ensure you have a method to save and send these taxes regularly throughout the year.
Excise tax
Your business may have to pay extra taxes for certain goods or services, known as excise taxes. Excise taxes apply to products like alcohol, tobacco, and gasoline. Most small businesses, such as indoor tanning salons and airlines, must also pay these taxes. If your business pays excise taxes, learn the rules for reporting and paying them.
If you need help with your taxes, it’s best to talk to a tax expert. They can advise you about your business’s federal, state, and local tax requirements.
2) Know What Business Tax Forms You Need to File
Businesses must use distinct tax forms to report profits, deductions, losses, and credits to the IRS. Here are some commonly used IRS forms:
- Use Schedule C when you file your taxes (Form 1040), and you’re a sole proprietor. It lets you report your business’s income, expenses, profits, and losses.
- Schedule K-1: If you own an S corporation or partnership, you must complete Schedule K-1. This form helps report details about the money, expenses, credits, and other important things from the business to the owners.
- You use Form 1099-MISC to report rent paid to landlords or payments made to attorneys. If you make those payments, your business must issue a 1099-MISC to recipients and report it to the IRS.
- If your business pays freelancers or contractors, you must report those payments to the IRS using Form 1099-NEC.
- Form 1120: This form is specifically designed for C corporations. You use it to tell the IRS about money, like how much your C corporation made and spent.
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- Form 1120-S: If you have an S corporation, you must file Form 1120-S. You can use this form to tell about your S corporation’s money, like income, deductions, credits, and other important info. Form 1120-S must be filed separately from your personal income tax return.
- Form 1065: If you operate a partnership, you must file Form 1065. A business uses this form to report its revenue and expenses and any tax deductions or credits. It’s for your partnership. You file Form 1065 separately from your tax return as with Form 1120-S.
- Form 720: This form is used for reporting excise taxes applicable to your business. Excise taxes are taxes on certain products or services. You can use Form 720 to report and pay these taxes to the IRS.
Talk to a tax expert and determine which forms you should complete and how to do it right. You can receive tax and business structure-specific guidance from them.
3) Create a Tax Filing Calendar
It’s important to remember tax deadlines to avoid fines and penalties. Make a tax calendar with all the tax due dates, such as estimated taxes, payroll taxes, and other filings. Note any changes to the deadlines by the IRS or state tax authorities. There are two methods to make sure to complete your tax deadline. First, you can set reminders for yourself. Second, you can use accounting tax software with deadline alerts. Both options will help you stay organized and file your taxes on time.
Here are the key dates to include on your 2024 tax calendar:
- The deadline to give W-2 forms to employees and 1099 forms to contractors is January 31, 2025. Additionally, you must submit copies of these tax documents to the IRS by this date.
- Companies need to submit Form 1099 or Form 1096 by February 28, 2025.
- Partnerships, S corporations, and multi-member LLCs must file tax returns by March 15, 2025.
- By April 15, 2025, you must complete your tax return if you’re a single-member LLC, sole proprietor, or C corporation and follow the normal accounting year.
- April 15, 2025: The first quarter estimated tax payment is due on this date. It’s necessary to figure out how much you owe and pay your estimated taxes to avoid getting fined for not paying enough.
Then in June
- June 15, 2025: The second quarter estimated tax payment is due by this date. Be sure to figure out and send the IRS your expected tax payment to stay lawful.
- September 15, 2025: The third quarter estimated tax payment is due on this date. Remember to calculate and pay your estimated taxes to meet your tax obligations.
- Partnerships, S corporations, and multi-member LLCs that filed for an extension need to file their tax return by September 15, 2025.
- If you’re a single-member LLC, sole proprietor, or C corporation that got an extension, you must file your tax return by 16 October, 2025.
- January 15, 2026: The fourth quarter estimated tax payment is due by this date. Make sure to figure out and send in your estimated tax payment to fulfill your tax duties.
- The next day is the due date for tax returns and payments on weekends and holidays.
Keeping a tax calendar will help you stay organized and meet tax deadlines. IF YOU COMPLY WITH THIS RULE, the IRS will not impose fines and penalties. Contact a tax pro for help or if you have questions. They can give you personalized human help based on your business situation.
4) Gather the Needed Business Tax Return Documents
Get your financial papers in order and collect the documents you need to file taxes for your small business. This includes:
General:
Your business has a unique ID number called a Federal Tax ID. It’s given to you by the IRS.
Social Security number: Your personal identification number for tax purposes.
It’s crucial to keep copies of your past tax returns for up to 3 years for state and federal filings. You can use last year’s tax return as a reference.
Business income taxes:
Accounting journals and ledgers: Detailed records of your financial transactions.
You can receive an overview of your company’s financial health from a balance sheet and income statement.
You need documents to show your business transactions. They can be sales receipts or purchase invoices.
Bank deposit slips: Proof of your business’s income through bank deposits.
Bank account statements show your business’s financial activity and transactions.
You keep track of invoices in two ways: the ones you get from suppliers and the ones you give to customers.
Checkbook: A record of checks issued by your business. Check out Accounting Software to track income and expenses.
Credit card statements record transactions made with your business’s credit card.
If you use vehicles for business purposes, keep track of the miles driven and expenses in a log.
Business-related expenses:
Gather receipts for expenses grouped into the following categories:
Supplies: Receipts for general office supplies.
Your business will have ongoing expenses like rent, utility bills, and monthly subscription fees. Keep receipts for these costs.
Entertainment/Travel: Receipts for business-related entertainment and travel expenses.
Marketing/advertising costs: Receipts for business expenses incurred to promote your business.
Professional fees are payments to tax experts like lawyers, accountants, and others. Keep receipts for these payments.
Get papers about your individual and group insurance plans, company vehicle policies, and other important insurance for your business. That’s your insurance policy details.
List the depreciation schedules for every piece of equipment or asset used in your business.
Employment taxes:
Employee forms:
- W-9: Tax withholding certificates for employees.
- I-9: Verification of employee legal working status.
- W-2: Wage and tax statements for each client/employee.
- 1099: Summary of fees and payments made to subcontractors and professional services.
Payroll reports:
- Gross monthly payroll.
- Total deductions withheld from employee gross wages.
Home office deductions:
- Square footage of office space.
- Total square footage of the home.
- Mortgage interest or rent paid.
- Utilities.
- Insurance policy.
Small business tax deduction checklist:
You can easily track business tax deductions by downloading a checklist. Use this checklist to gather the documents you need for your business taxes. You can prepare your taxes alone or hire someone, but use this checklist to help you. It will make filing taxes for your small business easier.
Remember to keep all your tax documents organized and readily accessible. If you are unsure or have questions, it’s good to consult a tax professional for help and advice.
5. Note down of common tax deductions and credits
Tax deductions and credits help reduce your small business taxes. Use these opportunities to deduct certain expenses and investments from your taxes. This will decrease the taxes you must pay when you file your return. Learning about the deductions and credits that small businesses can use for taxes is important. This will help you manage your taxes better.
Small business tax deductions
There are many types of tax deductions for small businesses that you might be eligible for. Businesses have many expenses like advertising, legal fees, rent, and internet and phone bills. They also have to pay for mileage, insurance, and loans. The expenses related to your business, such as employee salaries, training costs, meals, and entertainment, can all be deducted. Also, you can deduct the value of assets used in your business. Certain licenses needed for your business might be tax-deductible.
Small business tax credits
Small businesses can use tax credits to lower their tax bill. This is on top of deductions they can claim. Here are some common business tax credits you should be aware of:
- Small employers with under 25 employees can get a credit for paying for employee health insurance. It is vital to note that this credit is only available for two consecutive tax periods.
- Investment Credit covers projects like energy, reforestation, and rehabilitation.
- Improving accessibility for people with disabilities can qualify you for the Disabled Access Credit. It covers the expenses you incur for this purpose.
- Businesses may get a tax credit for hiring certain groups of people like veterans or ex-felonss. It’s called the Work Opportunity Credit.
- Your business can get a tax credit using electric or hybrid cars. This credit is called the Alternative Motor Vehicle Credit.
- Employers who give their workers paid family and medical leave can get a credit. The credit is for eligible employers.
Some small business tax credits apply to your situation. Here are a few examples. You should check the IRS’s Business Tax Credits website.
6) Request a filing extension if needed
If your taxes are tough or you can only collect some of the papers by the regular deadline, you can ask for more time to file. By filing Form 7004, you can obtain a six-month extension to report your business income.
To make filing your taxes easier, use this checklist for small businesses. It will help before your extension ends. It will help you that you have all the documents you need. The IRS wants your taxes, just like everyone else. They can help small businesses find a way to pay. Engaging with them proactively can help you find a solution that you can handle.
Conclusion
Preparing taxes for a small business can be complex. However, you can succeed by organizing and understanding the process. To make filing your taxes easier, learn about business taxes, gather required documents, and keep track of deadlines. It’s smart to talk with a tax expert or accountant for advice on your unique business situation.
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