I provide mentorship to small business owners and often talk to them about how money circulates within a business and how it impacts income taxes. The discussion always turns to which federal tax form to use and which schedules go with it. Not every business is required to file all tax forms, and some forms are only required for specific businesses or in specific situations. You should speak to your CPA about your personal income tax situation.
The following is a list of some of the most common tax forms and schedules that small business owners are likely to encounter. This list is not intended to be exhaustive.
Small businesses are more important than you think
According to the
U.S. Small Business Administration
, there are 30.7 million small businesses in the country, or, 99.9% of all United States businesses.
Nearly half of all employed Americans work for small businesses. entrepreneurs also have a great responsibility. Even though you may not feel very innovative at the moment, it’s important to remember that your idea is one-of-a-kind. Additionally, the way you choose to execute your idea will greatly affect its likelihood of success.
Building your small business with online forms
This article provides information to help you start your own business and build your brand identity by incorporating web forms.
Forms can help you with things like improving your process for taking in new clients, onboarding new employees, and keeping your IRS information up to date. Besides helping you to get new leads and grow your list of subscribers, it is also important.
Internal communications also benefit from custom forms. Oline forms can help you keep track of your income and expenses, monitor your staff’s performance, and gauge the workplace environment.
This text describes some of the most common ways that small businesses can save time and money.
How web forms can help your small business grow
##### As a small business, you always want to be growing and expanding in a secure and reliable way. What kind of simple things or quick actions can help you achieve your goals?
A well-designed and optimized website is beneficial because it allows your clients to learn about your business from anywhere. In addition to all the SEO techniques that bring new clients in from their Google search, web forms can also help you to reach your lead-capturing goals.
Grow lead generation
Web forms can be placed on your website, shared through social media, or sent out in email campaigns by themselves. You can optimize every aspect of your web form design to increase conversions. In addition, you can add features like Real-time Data Capture to make sure you never miss a potential customer.
Get Feedback
If you have a great product, how can you prove that it is actually great? The feedback form will allow your client to give feedback on the user’s experience. You can improve your service significantly by tracking the quality of it with a feedback form.
Easy employee management
The satisfaction of your employees is important to think about if you have employees. A HR form that sees employee satisfaction can be proven useful. This tool allows you to identify what needs to be improved, changed, or removed from your workplace. This demonstrates to your employees that you value them.
The good news is that this process is digital, which means it’s more eco-friendly than traditional methods. Additionally, online form builders automate the process and save you time.
Forms Used to Set Up a New Business
If you don’t have any employees and you work as a sole proprietor or in a single-member Limited Liability Company in the gig economy, most of the information covered here is not necessary. If you are self-employed, you will likely need to file a Schedule C and Schedule 1 to report your income and expenses using your Social Security Number as your tax ID. This post will serve as a guide to the various tax forms that partnerships and businesses with investors will need to be familiar with.
Form SS-4 (Application for Employee ID Number)
You may want to obtain a separate Tax ID Number (TIN) for your LLC or corporation. A Tax Identification Number (TIN) is usually called an Employee Identification Number (EIN).
Although you are not required to, you can obtain a separate tax ID as a single-member entity. To get a separate tax ID for your business, you need to file a Form SS-4 with the IRS and wait for approval. After the IRS approves your request, they will provide you with a tax ID for your business. This tax ID will be used for all future tax-related purposes. A tax ID allows the IRS and other taxing jurisdictions to identify records that belong to a specific business, in the same way that an SSN does for individuals. The IRS will not charge a fee for applying for a tax ID, but they will expect businesses that have a tax ID to file a tax return.
Form 2553 (Election by a Small Business Corporation)
If your business is a sole proprietor or an LLC, you will pay taxes as an individual. The taxes for a corporation are paid directly to the IRS, while the taxes for a sole proprietor or LLC are paid by the individual. Other entities are known as pass-through entities and will only file informational tax returns. The members of pass-through entities will pay income taxes to the IRS based on their own income levels. However, if you would like your corporation to be taxed as a pass-through entity rather than as a corporation, you will need to file a Form 2553 with the IRS to elect Subchapter S status under the Internal Revenue Code.
Forms Used to Shift the Tax Burden
The expenses of a business lowers its tax burden. However, the money that one business spends represents income for another business. The IRS requires you to report the tax ID and annual amount paid to a contractor or freelancer when claiming a deduction for expenses incurred by your business.
Form W-9 (Request for Taxpayer Identification Number and Certification)
You can use a Form W-9 to obtain the information from the other party when you need to report that you paid them, but don’t know their tax ID. A Form W-9 is a form that is used to request another party’s tax information so that a Form 1099-MISC can be sent to them to report payments that were made. The W-9 form from the IRS requests the name, address, and tax identification number of the taxpayer. Completion of the Form W-9 is the responsibility of the other party. Once completed, the form should be returned to you. The Form W-9 is never sent to the IRS, but should be kept as part of your records for verification purposes.
Form 1099-MISC (Miscellaneous Income)
If you work as a contractor or freelancer, you’re probably familiar with getting a Form 1099-MISC from your clients. A Form 1099-MISC is used to report non-employee compensation. If you paid a freelancer or contractor more than $600 during the tax year, you need to send them a Form 1099-MISC. However, if the services were performed by a corporation, the business is not required to issue a Form 1099-MISC to the corporation.
The company is responsible for sending Form 1099-MISC to both the contractor or freelancer and the IRS by January 31.
The IRS will use a Form 1099-NEC for non-employee compensation starting in tax year 2020. This change will affect how compensation is reported for the 2021 tax year.
Form 1096 (Annual Summary and Transmittal of U.S. Information Retunes)- Paper File Only
In most cases, you can complete Form 1099-MISCs using an online platform such as QuickBooks, TurboTax, or Tax1099. The platform will send the Form 1099-MISC to the contractor or freelancer and the IRS.
If you decide to mail paper copies of Form 1099-MISC to freelancers and contractors, you will need to also send copies of each Form 1099-MISC to the IRS, along with a Form 1096. This needs to be done on or before January 31.
Forms Used When You Have Employees
When you hire employees in the United States, you will need to verify that they have the legal right to work in the country, collect their tax information, and report their wages and withholdings to the Internal Revenue Service (IRS) and the Social Security Administration (SSA).
Form I-9 (Employee Eligibility Verification)
The I-9 form is used by the United States Citizenship and Immigration Services to document that an employee is eligible to work in the United States. A Form I-9 is required by the Immigration Reform and Control Act of 1986 in order to verify the identity and legal authorization of an individual to work in the United States. Employers are responsible for ensuring that Form I-9 is completed correctly for each employee they hire.
The employee must present a completed Form I-9, as well as acceptable documents such as proof of identity and employment authorization. The business needs to make sure that the Form I-9 and its supporting documents are real and match the employee. They would do this by looking at the document and writing down the information on the I-9 form. The acceptable documents for the Form I-9 can be found on the form itself. The company does not need to submit the I-9 form to any government organization. The I-9 form, plus copies of the documents used to verify the employee’s information, must be kept on file and made available to government officials if requested.
Form W-4 (Employee’s Withholding Allowance Certificate)
Most employees will have completed a Form W-4 for their employer at some point. An employee completes a Form W-4 IRS tax form before starting their employment to show their particular tax situation to the employer. An employee completes a Form W-4 to tell their employer how much tax they want withheld from their paycheck.
Form W-2 (Wage and Tax Statement)
If you are an employee, you should know about Form W-2. If your business has employees who earned more than $600 in a tax year, you are required to issue W-2 forms to those employees. The employee needs to file a W-2 form for every employee that they have paid wages to and have had Federal and State income taxes, as well as Social Security and Medicare tax, withheld. The company must send out W-2 forms to the employee by January 31.
Form W-3 (Transmittal of Wages and Tax Statements)
If you use an accounting platform such as QuickBooks, your Form W-2 is usually completed and sent electronically. These services will calculate and issue paychecks on behalf of the business. In some cases, a business may use a payroll service to calculate and issue paychecks on behalf of the business. When an employee’s W-2 form is being prepared, the platform sends the form to the employee and also prepares a W-3 form to send directly to the Social Security Administration.
If you choose to provide paper copies of Form W-2 to your employees, you will also need to mail copies of the form to the Social Security Administration, along with a Form W-3, which is a summary of all W-2 forms. DimensionData is required to provide the Social Security Administration with W-3 forms by January 31.
End of Year Business Informational Tax Return Forms
There is no need for a separate informational return if you are a sole proprietorship or a single-member LLC. You fill out your Schedule C to show your income and expenses. If you have a profit from your Schedule C, you will record it on your Schedule 1. If you have a loss from your Schedule C, you will record it on your Schedule 1.
If the business has partners, investors, or shareholders, the business will need to fill out and send an informational return to them.
Form 1065 (U.S. Return of Partnership Income)
A business partnership reports its financial information to the IRS using a Form 1065. Partnerships do not pay taxes directly to the IRS. The business must file a Form 1065 informational return because there is more than one partner.
As “pass-through” entities, partnerships’ profits and losses are passed directly through to their owners. Form 1065 is a tax document that declares the profits, losses, deductions, and credits of a business. The partners must report and pay taxes on their share of income from the partnership on their personal tax return.
Even though partners are required to pay income tax on their share of the company’s profits, the business itself is not obligated to distribute those profits among the partners. A business will give some of its profits to the partners so they can use the money to pay their income tax.
Schedule K-1 (Partner’s Share of Income, Deductions, Credits, etc.)
Since a partnership is a pass-through entity, they only need to complete informational tax returns. The tax liability is transferred to the business owners with a pass-through entity. Schedule K-1 forms are required to be filed for any partners whose share of the company’s profits is more than $600. These forms itemize the partner’s share of the company’s profits, losses, deductions, and credits. Each partner in a partnership receives a Schedule K-1 every year. This document shows that person’s share of the partnership’s earnings, losses, deductions, and credits.
Schedule B-1 (Information on Partners Owning 50% or More of the Partnership)
Partners who own 50% or more of a partnership are issued a Schedule B-1 rather than a Schedule K-1.
Be aware that the K-1 and B-1 forms for a partnership are different than the K-1 and B-1 forms used for a subchapter S corporation.
Form 1120 (U.S. Corporation Income Tax Return)
The form 1120 is a tax return form used by regular corporations. Regular corporations are C-Corps and subchapter S corporations are S-Corps. A corporation is not the same as a partnership. Non-pass-through entities, or regular corporations, pay corporate taxes based on the Federal corporate tax rate. The corporate tax rate was lowered to 21% in the Tax Cuts and Jobs Acts of 2017. Regular corporations that want to report their income, losses, and dividends paid to shareholders must do so by filing a Form 1120 with the IRS.
Form 1099-DIV (Dividends and Distributions)
Unlike entities that pass the tax burden to partners and shareholders, a regular corporation pays taxes to the IRS. When a regular corporation pays some of its earnings to its shareholders, it does so by issuing dividends. Dividends that a regular corporation pays to shareholders that are more than $10 are reported on a Form 1099-DIV. Annual 1099-DIV forms are sent to shareholders to document the dividends they have received.
A Dividend is a pro rata share of the earnings of a corporation that is declared by the board of directors and paid to shareholders. A Distribution is a pro rata share of the earnings of a corporation that is declared by the shareholders and paid to shareholders.
Form 1120S (U.S. Income Tax Return for an S Corporation)
Subchapter S corporations are corporations that have elected to be taxed as a partnership and file a Form 1120S informational tax return with the IRS. What is a Form 1120S? It’s a way for a subchapter S corporation to report its income, losses, and dividends paid to shareholders.
Schedule K-1 (Shareholder’s Share of Income, Deductions, Credits, etc.)
Only an informational tax return is completed by a subchapter S corporation since it is a pass-through entity. The pass-through entity means that the tax liability is transferred to the business owners. Shareholders who own more than a certain percentage of the company’s stock are required to fill out a Schedule K-1 form in order to document their share of the company’s profits or losses. Schedule K-1s are issued on or before January 31.
Schedule B-1 (Information on Certain Shareholders of an S Corporation)
Rather than issuing a Schedule K-1 to majority partners owning 50% or more of the subchapter S corporation, a Schedule B-1 is issued.
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