As a small business owner, you are responsible for filing and paying taxes to the IRS for your employees and business.
There are many tax forms to fill as a small business owner, and it can get overwhelming running a business and learning tax codes. However, the more you learn, the easier it will be to ensure compliance with the tax authorities.
Some tax forms will be easier to use, but others will be complicated and may require some help. The following are the IRS forms that often confuse small business owners and how to use them correctly.
If your business is a sole proprietorship, which most small businesses are, you should learn how to properly use IRS Form 1040, as you are the one who will be submitting tax forms for your business. There are various types of Form 1040 forms, including:
IRS Form 1040 is the document you will use to file your individual income tax return. However, you must file additional Form 1040 documents alongside this main return document.
Form 1040 Schedule C
IRS Form 1040 schedule C is the document you will complete to report your business’s annual profit or loss. The information on Form 1040 Schedule C is what you will use to file your individual Form 1040 document as a sole proprietor.
Form 1040 Schedule C-EZ
You may qualify for this document if you are a tiny business. The Form 1040 Schedule C-EZ is the document small businesses fill out to report their annual profit or loss. Ensure you meet all the IRS requirements before submitting this form.
You use IRS Form 1040-ES to calculate and pay your estimated taxes. Estimated tax is a method of paying income tax that is not subject to withholding tax as a self-employed individual. Because you have no employer who can withhold your taxes, you must pay estimated taxes every quarter.
You fill out IRS Form 1040-SE to establish how much you must pay in self-employment taxes. Self-employment taxes, in this case, refer to Medicare and Social Security taxes.
If you register your small business as a corporation, you will use Form 1120 to pay your taxes. Form 1120 is also referred to as the U.S income tax return form and is the document you use to report the profits or losses of your business.
You must file the document annually as long as your firm is classified as a corporation. The form is due on the 15th day of the fourth month after the corporation’s tax year ends.
There are two types of corporations in the United States: S and C. C corporations are considered regular corporations and Form 1120 is what they will use to report their gains, losses, credits, and deductions.
S corporations will have to fill out Form 1120S. The business owner will submit the Form 1120S separately in addition to the Form 1040 they will submit for their individual returns. All the shareholders of an S corporation also have to file a separate Form 1120S Schedule K-1. The document will calculate the tax each shareholder should pay based on their ownership and contribution to the profit and loss of the corporation.
The Form 1120S Schedule K-1 does not have to be filed with the IRS, but it benefits the shareholders when filing their individual tax returns.
IRS Form 940 is another document that often confuses small business owners. The document reports yearly Federal Unemployment Tax Act (FUTA) taxes. Employees receive unemployment insurance when fired for reasons they cannot control.
Therefore, employers must contribute to the insurance fund, and Form 940 outlines their contribution. You only have to file Form 940 with the IRS once a year, but you must make the FUTA tax payments quarterly.
There are various types of 1099 tax forms. However, we will primarily focus on the 1099-NEC forms in this article. Form 1099-NEC is the IRS tax form you have to fill out for payments you make to contractors.
There are various requirements to meet to file the form. You must have made payments of over $600 during the year to the contractor. You must have also made the payment from your business and not individually to the independent contractor.
You send the form to the contractor and keep a copy of your own as proof of tax remitted for payments made to the contractor for their services.
The Form 1099-NEC is usually a document that often trips up small business owners, so consider a 1099 NEC template to make it easier for you and your contractor. The due date for filing Form 1099-NEC is the 1st of February.
Form 1099-R is another version of Form 1099 that small business owners may have to file. It refers to the document used to report any contributions you’ve made for pensions, annuities, retirement or profit-sharing plans, IRAs, and insurance contracts, in the given tax year.
Small business owners must file Form 1099-R for each person to whom they made contributions. The recipients must also file Form 1099-R.
Form 941 or Schedule B
Form 941, which you will often hear referred to as Schedule B, is the document you file with the IRS to report the Federal income taxes and payroll taxes you have withheld from your employees. Therefore, only small businesses with employees need to file Form 941. You must file as well as pay the taxes on Form 941 every quarter. The payment due dates are as follows:
- First quarter: April 30, 2021
- Second quarter: July 30, 2021
- Third quarter: October 30, 2021
- Fourth quarter: January 30, 2022
There are too many IRS forms that bamboozle small business owners to list here. Business owners often have to focus on running the business, but learning to fill and file these IRS forms ensures that they will be tax compliant and have a business to run. Form 1040, Form 1120, Form 940, Form 1099, and Form 941 are the most common IRS forms that stump business owners but feel free to learn as much about other forms as possible.