Congrats! You’ve made it to your first tax season as a small business owner. But before you can celebrate this milestone, you have to be sure to file your taxes properly. While this can seem daunting, especially the first time around, we’ve put together a general guide to help you get started.
But first, there are a few key items you will need in order to file your taxes as well as some important decisions you need to make in the first year of your business that will have an impact when it’s time to file for the first time.
To file your business taxes, you will need to determine what type of business entity you are. There are a number of different structures to choose from including:
Sole proprietorships
Partnerships
Limited liability corporations
S corporations
C corporations
Each of these structures will have its own requirements, advantages, and tax implications.1
Once you have a business structure in place, you will also need to obtain an Employer Identification Number (EIN) for your business. This is a unique nine-digit number issued and used by the IRS to identify your business for tax purposes. You’ll need one to do important business activities like hiring employees, opening a business bank account, and filing your taxes. Note that sole proprietorships allow for individuals to use their Social Security number rather than requiring a separate EIN.
You can apply for an EIN online or by mail, fax, or phone.
With those pieces in place, you are technically ready to file your business taxes for the first time, but there are also a few important things to consider beforehand.
Separating personal and business finances: It's crucial to separate your personal and business finances for several reasons. Separation gives you legal protection and helps limit your liability. It also simplifies tax compliance, enhances professionalism, and improves your business's creditworthiness.
Record keeping: With an active business account, it’s important to maintain accurate and organized records of all your business income and expenses. This includes invoices, receipts, bank statements, and any other financial documentation related to your business activities.
Accounting methods: The accounting method you choose will affect how you report income and expenses on your tax return so be sure to consider them both before making a decision. The two primary methods to choose from are cash or accrual, each of which have their own benefits and challenges for small businesses.
With your technical requirements squared away and key decisions made, you should have all the pieces in place to file your taxes.
As the owner, it’s up to you to understand the taxes your business is responsible for. Every scenario is unique, but common taxes for small businesses include the following:
Federal income tax
State income tax
Local income tax
Sales tax
Employment taxes (e.g., payroll taxes)
Property tax
Business license or permit fees
Industry-specific taxes or fees
Now it’s time to really get down to business and start filling out your tax forms. The exact forms you need to file will depend on your business structure.
Common forms for small businesses include:
Schedule C (Profit or Loss from Business)
Form 1040 (Individual Income Tax Return)
Form 1065 (Partnership Return of Income)
Form 1120 (Corporate Income Tax Return)
Form 1120S (S Corporation Income Tax Return)
It can take some time to get the hang of small business taxes. If you’re struggling with filling out forms or can’t seem to make sense of your receipts, you may be better off working with a tax professional or accountant with experience working with small businesses.
This way, you’ll have peace of mind knowing your taxes were filed correctly, on time, and with every possible deduction and credit.
Speaking of deadlines, make sure you know all of the relevant tax filing deadlines and extensions. Missing these deadlines can result in penalties and interest charges.
It's important to note small business tax deadlines may not always align with individual filings, so it's best to confirm them each year.
Think of the first time you are filing taxes as an opportunity to improve your record keeping and tax strategy for the future. Ask yourself what went smoothly and what steps of the process could use a little polishing.
Just like any other process, practice makes perfect!
Making it through your first tax season as a small business owner can be challenging. But if you set yourself up for success, take ownership of your tax responsibilities, and reach out for guidance when you get stuck, you’ll be through the process in no time.
If you’re looking for small business advisory services, consider working with New York Life. We support small business owners just like you with everything from disability insurance to wealth management.
1 “Tax Implications of Different Business Structures” Investopedia, January 2024
This article is provided for general informational purposes only. Neither New York Life Insurance Company, nor its agents, provides tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.
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