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Self-employment is a big business in the United States. About 15 million Americans are classified by the Bureau of Labor Statistics as being self-employed. Considering the US has a working-age population of around 205 million, this means that more than 7% of American adults are self-employed. And those numbers don’t count the millions more who take on self-employment as a side gig, supplementing income from a full- or part-time job. Upwork reports that in 2020, more than one-third of American workers were freelancing at some level.
While it may be freeing to start working for yourself — a big reason freelancing is of such interest to many younger people — it also comes with some serious responsibilities and obligations.One of the most annoying of those obligations is to the Taxman. Or Tax-woman. Tax-person?
Every April, the IRS comes calling. If you work as a traditional full-time employee, that month is the only time you really need to think about the IRS. Your employer pays the government taxes on your behalf throughout the year, and you are only on the hook to file your forms in April and pay anything you still owe.
You may even end up getting money back, which really takes the sting out of this time of year.Things aren’t nearly so simple for the self-employed out there. Not only do you need to file your estimated taxes quarterly if you’re self-employed, but a piece of those estimated numbers is comprised of self-employment tax.
What is self-employment tax?
Self-employment tax refers to a specific tax levied by the federal government, consisting of Social Security and Medicare taxes paid by those who work for themselves. This is a tax levied on an individual’s net earnings from self-employment.
It’s important to understand that the term “self-employment tax” does not refer to any other taxes that self-employed people are required to pay, like income tax. Every US taxpayer pays Social Security and Medicare contributions as part of their taxes. In a traditional employment scenario, you pay half of this tax, and your employer pays the other.
For 2020, the self-employment tax rate was 15.3% — composed of 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance). Those who are employed full-time pay half of this amount, for a total of 7.65% (labeled FICA on the pay stub), while their employer pays the other 7.65%.
Those taxpayers who are self-employed pay both halves of this amount — the full 15.3% for 2020. This percentage applies to the first $137,700 of your combined wages, tips, and net earnings for 2020 (and will apply to the first $142,800 in 2021).Being on the hook for a big chunk of change that most people’s employers cover for them can be a cold bath for freelancers and other self-employed people.
Wait! I make peanuts. Do I even have to file a tax return?
If you’re new to self-employment or work part-time for yourself, you may be making an income so small that you don’t actually have to pay taxes at all.There are different thresholds that determine whether or not you have to pay taxes.
For example, a single filer in traditional employment who earned less than $12,400 in gross income doesn’t have to file a tax return in 2020.But unfortunately for self-employed people, the threshold they face is far lower. Self-employed individuals who earned any more than $400 during the year need to file a tax return.
You may not actually have to pay any taxes, but you still need to file a return.And as soon as you start needing to file, you start needing to calculate whether or not you need to pay self-employment tax.
Wait! Am I really self-employed?
The IRS considers you self-employed if any of the following are true:You carry on a trade or business as a sole proprietor (including as a single-member LLC), an independent contractor, or a freelancer.You are a member of a partnership that files a Form 1065 and that carries on a trade or business.
You otherwise are in business for yourself, including a part-time business.The IRS considers you to be not self-employed if:you're an owner/shareholder of a corporation, or you receive only a W-2 tax form.
The IRS considers you self-employed if you work for yourself part-time, regardless of whether you have another full-time job as well. You must determine the total amount of self-employment tax you must pay in both roles and ensure you’re paying enough total.
Wait! What if my self-employment income is passive?
The IRS defines passive income in two ways. Income you gain from a business that you own or partially own and that operates independently of you is passive income, as is rent money that you collect as a real estate owner.
You can earn income from either or both of these two sources without being considered self-employed. This means that you don’t have to pay self-employment tax on that money.
How to file self-employment taxes
You will file self-employment taxes as part of your larger tax filings; it’s simply an extra number you need to calculate and include on your forms. Follow these steps and you’ll be able to file with few headaches.
Get your paperwork in order
Collect all your paperwork before you start doing your taxes. You’ll need the tax return you plan to file — probably Form 1040. You’ll also need to collect any other forms that show expenses like student loan interest and health insurance premiums. If you got health insurance through the Healthcare Marketplace you’ll need Form 1095-A.
You’ll also need your business records: all the payments you received and all the expenses you deducted to run your business. If you’re a freelancer, your clients who paid you more than $600 total during the year will send you 1099-MISC forms. Make sure the totals on these forms match up with your records.
Figure your net earnings
Self-employment taxes are calculated from your net earnings from self-employment. That means that deductions are your friends when you file self-employment taxes.The idea of deductions can get confusing for self-employed workers because you’ll need to account for business deductions as well as personal tax credits.
When calculating your business deductions, make sure you’re only counting things for which you have documentation and a legitimate business reason. For example, you can’t deduct a cup of coffee you bought if there was no business use for it. But you can deduct 50% of a cup of coffee that you ordered during a meeting at a café with a client.
If you’re not sure if an expense qualifies as a legitimate write-off, ask a tax professional.As a self-employed person, you may qualify for a home office deduction. To qualify, you have to dedicate a portion of your home to business use — and not use it for anything else. If you qualify, you can deduct a flat amount or a percentage of your utilities, rent or mortgage, insurance, repairs, and maintenance costs.
File your federal return
If you’re self-employed as a freelancer or a single-member LLC, you’ll need to fill out a Form 1040 and will report your business net income on Schedule C.
If you run a separate business that is not a pass-through, like a partnership or multiple-member LLC, you’ll report business net income on Schedule K-1. All self-employed people should report their self-employment tax on Schedule SE.
Don’t forget about state and local taxes
After you’ve paid the IRS, you may also have to deal with state and local taxes, too. Some states, like Pennsylvania, have a flat income tax, while New Jersey has a progressive tax system where the percentage you pay goes up with your income.
There are nine states that don’t have any income tax.The good news is that you don’t have to worry about paying self-employment tax to your state or local government — it’s a federal thing. You may have other things to worry about paying, depending on where you live — like transit tax — but self-employment tax isn’t one of them.
Do I have to pay estimated self-employment tax?
If you’re likely to owe more than $1,000 in taxes the next time you file as a self-employed person, then you have to pay estimated taxes.
This means you pay the amount you think you owe for a given quarter of the year or however much you paid for that quarter the previous year.Because estimated taxes are meant to add up to all of the taxes you own for a given year, self-employment tax is included in those amounts. You’ll be paying self-employment tax as you go, along with your income tax.
How do I pay estimated tax?
To determine the minimum you must pay each quarter, you can take what you owed in taxes the year before and divide it by four. If it’s your first year as a self-employed person, you should estimate the amount of income you think you will earn throughout the year.
Estimated taxes are due four times throughout the year: April 15, June 15, September 15, and January 15. Yes, you must pay the estimated tax payment for the first quarter of the new tax year at the same time that you pay your annual taxes for the year before.Use Form 1040-ES to figure out how much to pay and to file your estimated taxes.
The form contains blank vouchers that you can enclose with your check if you decide to mail your estimated tax payments. Alternately, you can use the Electronic Federal Tax Payment System (EFTPS) to file your estimated taxes.The IRS’s Estimated Taxes page has more information about filing your quarterly estimates.
What if I can’t pay all my taxes?
If you’re a self-employed person paying estimated taxes, there’s always a real possibility you’ll end up owing more than you expected.
Your earnings aren’t steady from year to year, or even from month to month, which makes it easy to miscalculate how much you should pay every quarter.You should make sure to pay enough each quarter to total at least 90% of the tax you owe for the current year, or 100% of the tax you owed according to your previous year’s return. If you don’t pay enough estimated taxes, you may get stuck with a penalty for underpayment of estimated tax.And what happens if you can’t pay the amount you still owe when you file your annual taxes?
Not paying your entire bill can also result in penalties. If you fear that may be your situation, don’t delay filing and end up missing the filing deadline. Instead, prepare your tax return, file it on time, and then contact the IRS to arrange an installment plan for payment.Doing this will cost you — the IRS charges a setup fee, interest, and penalties.
But it’s better than simply not paying. The penalties will be far worse if you stick your head in the sand and neglect filing, paying, or contacting the IRS when you should.Ignoring the problem could land you with a failure-to-pay penalty or a failure-to-file penalty. These penalties add up month after month until you fix the situation.
The failure-to-pay penalty is 0.5% of your unpaid taxes each month or fraction of a month that goes by after you’ve missed the deadline, plus interest charges.
The Failure-to-file penalty is 5% of your unpaid tax bill each month or fraction of a month after the due date, plus interest. The accrual of this penalty starts the day after you miss the deadline.
If you get slapped with both of these penalties at the same time, you’ll be on the hook for a maximum of 5% of your tax bill. They can each accumulate to add up to 25% of your unpaid tax bill. In addition, you’ll be accumulating interest on your unpaid taxes.
Filing self-employment taxes made easy
Becoming self-employed can be a dream come true. You can work when you want and often from where you want. But there is a small price to pay for that freedom: You have to take care of self-employment taxes.Don’t leave things to chance.
After all, you don’t know what you don’t know. While the IRS’s Self-Employed Individuals Tax Center can help you figure your way through your taxes, these issues get complicated fast. An easier route may be hiring a tax professional to take care of your taxes for you. Learn more about our tax preparation services today.
Whether you’re incorporated or running a sole proprietorship you probably hire an accountant to prepare your income tax return. However, it’s important to know what tax deductions are available so you can save the right receipts and make wise choices. You don’t want to wait until April to find out some of your expenses aren’t deductible after all.
Equally, you don’t want to discover missed deductions at the last minute and scramble to recover lost receipts.
1. Home Office Deduction: While employees are no longer eligible for the home office deduction, self-employed people and small business owners are still eligible. According to the IRS, your home office qualifies as deductible when you meet two requirements:The area is used “exclusively and regularly for your trade or business.” In other words, your office must be dedicated to business and not movie nights or posting on Facebook (unless posting on Facebook is part of doing business)Your home is your principal place of businessWhen you qualify for the home office deduction, you also qualify for deducting a portion of utilities and other household bills. However, be careful with this deduction and verify that your claim is legitimate. If your office doesn’t have walls or some kind of partition, or if you need to walk through your office to get to other areas of the house, it’s better not to claim the home office deduction.
2. Vehicle-related expenses: Small businesses can deduct certain vehicle-related expenses on their tax return including depreciation of the vehicle, lease payments, gas, tires, repairs, insurance premiums, and registration fees.This 58 cents per mile for business purposes, 20 cents per mile for medical or moving purposes, and 14 cents per mile while driving for a charitable organization.
3. Holiday parties and business meals: Entertainment, amusement, and recreation expenses are no longer deductible, but some related deductions are still available. For instance, business meals can be deducted at 50% of the cost as long as the food isn’t considered “lavish or extravagant.” Holiday parties are fully deductible and meals employees buy during business travel are 50% deductible. Until 2025, employers can deduct employee meals if they came from an employer-operated cafeteria.
4. Depreciation: If you’ve been missing the depreciation deduction, it’s back. Qualifying assets are those with an expected lifespan of 20 years or less. This includes machinery, computers, appliances, and furniture.Qualifying assets purchased (and put into service) after September 27, 2017 are eligible for a 100% bonus depreciation deduction. After 2022, the deduction will decrease by 20% until it’s gone.
5. The section 199A deduction (qualified business income deduction):The qualified business income (QBI) deduction is available to some sole proprietors, partnerships, and S corporations along with certain trusts and estates.This deduction is one of many created by the 2017 Tax Cuts and Jobs Act.The qualified business income deduction allows pass-through businesses to deduct the cost of following:Up to 20% of qualified business income20% of qualified real estate investment trust (REIT) dividends20% of qualified publicly traded partnership (PTP) incomeThe IRS FAQ page states that the QBI is subject to limitations that include the type of business, amount of W-2 wages paid by the business, and the unadjusted basis immediately after acquisition of qualified property held by the business. If the taxpayer is a patron of an agricultural or horticultural cooperative, the QBI deduction might also be reduced.S corporations and partnerships don’t qualify for this deduction directly. The shareholders or partners are responsible for claiming their deductions.QBI income thresholdsFor doctors, lawyers, and other professionals to qualify, they must earn $207,500 if single or $415,000 if married and filing jointly.Who is not eligible for the QBI deduction?According to the IRS, income earned through a C corporation or by providing services as an employee is not eligible for the QBI deduction.
6. Employee family and medical leave tax credit: A new tax credit was established to encourage small businesses to help employees with family and medical leave needs. If your business offers paid family or medical leave, you’re entitled to this credit for the 2019 tax year. Your business can deduct about 12.5%of the wages you pay to your employees while they’re on leave. Your credit increases the more you pay your employees but caps off at 25%.How to qualify for this creditTo qualify for the family and medical leave credit, your written paid leave policy must grant full-time workers a minimum of two weeks paid leave each year. Part-time employees must be granted a prorated amount of paid leave. Your paid leave policy must also pay employees no less than half their normal wages.Your paid leave policy must include the above requirements in writing and must have been communicated to your employees before December 31, 2018.Qualified and unqualified employeesQualified employees are workers who have been employed for at least one year. However, you can’t claim the 2019 credit for employees who earned more than a certain amount the previous year.
7. Travel expenses: Your small business can deduct travel expenses when those expenses are necessary for business. However, you can’t deduct lavish or extravagant expenses. For instance, if you chartered a private jet to fly from Miami to New York for $300,000, that would be considered extravagant and not an eligible deduction. Deductible travel expenses include:Plane, train, or bus ticketsFares for a cab or shuttle between the airport and your hotel, to and from your work location, etc.Meals and lodgingLaundry and dry cleaningTips paid to necessary services (like laundry)Anything other necessary costs incurred while doing businessThe IRS says travel expenses for conventions and trade shows within North America are deductible when you can prove your attendance benefits your business.
8. Employee retirement plan contributions: Retirement plans are an employee benefit, but they also benefit your bottom line. Your contributions to employee retirement plans are deductible as a business expense. You might also qualify for a credit of up to $500 for expenses incurred in the process of setting up and maintaining employee retirement plans for the first three years. According to Fidelity.com,simple IRA and SEP IRA retirement plan contributions are deductible business expenses.
9. Education: You can deduct the cost of educational expenses when that education adds value to your business or will increase your expertise. For example, if you’re a tax preparer, these 4 IRS approved tax prep courses are deductible.Education expenses can include classes, seminars, webinars, workshops, conferences, and books.
10. Legal fees: Any legal fees you incur that are necessary to run your business are tax deductible. For example, fees paid to your lawyer, accountant, bookkeeper, and tax preparer are all deductible expenses. Accounting softwar is also a deductible expense.
11. Moving expenses: The Tax Cuts and Jobs Act eliminated moving expense deductions for non-military individuals, however, businesses can still deduct the cost of moving supplies and equipment to a new location. For example, if you moved your office and hired movers to take all your equipment to the new location you can deduct those expenses.
12. Rent paid for your office: If you’re renting an office, your rent is a tax-deductible business expense.
13. Various taxes and licenses: If you qualify, you can deduct certain taxes and licenses related to your business. In addition to state taxes and payroll taxes, you might be able to deduct:Excise taxesBusiness license feesSales taxReal estate taxes paid on your business property
14. Miscellaneous expenses: Whether you work at home or in an office, you can deduct phone and internet expenses. However, you can’t deduct your landline if it’s your only line. You can deduct a second landline, however.Other miscellaneous deductible expenses include advertising expenses, donations to charity, healthcare expenses, child and dependent care (using form 1040).
Keep track of all expenses, even when you don’t think they’re deductible. To reduce your taxable business income as much as possible and maximize your refu, keep accurate records of all expenses and save/print all receipts. Some expenses might unexpectedly fall under a broad category of deductible expenses and if so, you’ll be glad you kept those records.
When running a small business, it’s helpful to form a legal entity. In doing so, you create additional layers of legal protection, as well as distinct tax advantages. And out of all the different types of business classifications, the Limited Liability Company (LLC) is by far one of the simplest, most common options.
What is an LLC?
When first starting out, it’s common for entrepreneurs to operate as sole proprietors. But as soon as the business starts growing, it quickly becomes apparent that this isn’t the best structure. An LLC, which is the most natural choice for small business owners, protects you against lawsuits and other costly legal action. It can also reduce paperwork and make your business seem more credible in the marketplace.
“For most small businesses, a limited liability company offers the right mix of personal asset protection and simplicity,” TRUiC explains. “Unlike sole proprietorships and general partnerships, LLCs can protect your personal assets if your business is subject to legal action. Unlike corporations, LLCs are relatively easy to form and maintain, and are not subject to double taxation.”One of the more unique aspects of an LLC is the fact that you can choose how you want to structure the ownership. There are two basic options:
This option is ideal when you’re the only person in the business and/or you want full control over all operations and decisions. The LLC label simply establishes the business as its own legal entity (independent of you, the owner.)
If there are two or more business owners, a multi-member LLC allows for shared control of the company. You can have an unlimited number of LLC members and clearly outline how profits and losses are distributed among each individual.While a single-member LLC is fairly straightforward, multi-member LLCs must decide how they want to be managed.
The first option is to be member-managed, which means all members actively participate in the work of the business. In this case, the company needs majority approval from members to enter into contracts, secure loans, or make other important decisions.The second option is to be a manager-managed LLC. Under this structure, members elect a manager and give this individual the authority to make decisions about day-to-day operations of the business.
The Tax Benefits of an LLC
While an LLC offers good legal protection for business owners, it’s the tax advantages that are most desirable. Let’s explore this topic in more detail:
Pass-through taxation is the defining characteristic of the LLC. It’s the concept that you’ll hear discussed the most – and rightly so. It describes the way in which LLC earnings can be passed through to the owner(s) without first having to pay any corporate federal income taxes. In other words, LLC businesses don’t pay any taxes themselves.
All earnings are passed on to the owners, who then pay taxes at their individual tax rates.The pass-through feature is one major way the LLC is different than the standard C corporation. Whereas C corp owners are subject to double taxation – once as a business and once as an individual – the LLC owner only pays taxes one time.
Another benefit of the LLC is that the IRS allows business owners to choose the way in which the business is taxed. You can be taxed as a sole proprietor, partnership, C corporation, or S corporation (with a few exceptions). Here’s a breakdown:
LLC as a sole proprietorship
If it’s just you, you can set up your LLC as a sole proprietorship. You simply file a Form 1040 individual tax form and a Schedule C to report the business profit or loss from the LLC. This is the simplest option, but it also puts a cap on your tax benefits.
LLC as a C corporation
This choice is great under certain circumstances. It allows your LLC to be taxed as a C corporation, which means you have to file a Form 1120 corporation tax return. The corporation pays taxes on all profits, while members report the income that’s passed through to them on their individual returns. Taxes don’t need to be paid on income that doesn’t pass through to members
LLC as an S corporation
When you set your LLC up to file as an S corporation, you file a Form 1120S. This means you don’t pay any corporate taxes on the income earned. Instead, shareholders report their portion of the income on their own individual tax returns.
LLC as a partnership
For multi-member LLCs, you can file as a partnership. Under this setup, each LLC owner pays taxes according to the share of profits/losses they’re responsible for.This information is reported on a Form 1040 and Schedule K-1. Don’t let all of these options confuse you. In most cases, there are certain restrictions in place that mean you can only choose from a couple of them anyway. Take your time, do your due diligence, and don’t let it stress you out. Once you wrap your mind around the issue, it’ll all make perfect sense.
How to Lower Your Business Taxes
Forming an LLC is a great way to avoid double taxation and enjoy optimal flexibility. Here are a few other ways your small business can lower taxes and maximize profits:
Make intelligent tax elections
Be smart about how you deduct expenses and investments. While you can sometimes deduct the full cost of an item in the current tax year, it might make more sense to depreciate it over a few years (if you expect your income to be higher in the future).
Use an accountable
If you have employees and you reimburse them for travel costs, lodging, food, etc., you can save on taxes by using something called an accountable plan. Under this type of plan, you’re able to deduct the expenses without having to report the reimbursements as employee income. This saves everyone money.
There are limitations on certain deductions and credits that prevent businesses from using them fully in the current tax year. However, you may be permitted to carry them over into future years and reduce taxable income. Examples include charitable contribution deductions, capital losses, general business credits, and net operating losses. If you use carryovers, make sure you keep a meticulous log so that you don’t forget to use them in future years. (Otherwise, you end up costing your business money.)
Fringe employee benefits plans
Any time you give your employees additional wages, you trigger more employment tax costs for the business. However, if you can turn these wages into fringe benefits, the taxes disappear. Examples of tax-exempt benefits include employer-sponsored health insurance, group life insurance, transportation benefits, and educational assistance.As always, a CPA or tax professional can look at your specific situation and walk you through some of the specific ways you can save money, bolster profits, and avoid paying more to the IRS than necessary.
Let Taxfyle Help You
When you’re a business owner, there are tons of different responsibilities and distractions vying for your attention. Taxes are the last thing on your mind. Yet, if you want to run a profitable business, you have to pay attention to this all-important element of your organization. At Taxfyle, we take care of taxes – from preparation to submission – so that you can focus on all of the other duties that come across your desk. Simply fill out a basic questionnaire and we’ll get you connected with the right tax professional for the job.
When forming a business, one of the most important decisions you have to make – particularly from a tax perspective – is how you’ll classify your company.For the smallest operations, this might be a sole proprietorship, but more often the choice is between forming an LLC and a C Corp, each of which has its own filing norms, tax rules, and regulations. But what about S Corp status? You won’t see this option when forming your business, and that’s because S Corp is a tax filing status, not a type of organization.
S Corp Election Basics
While LLCs and C Corps are standard business forms with tax norms of their own, sometimes those tax structures are less than ideal. That’s when a business might choose to make an S Corp election. The key advantage of making an S Corp election is that it combines the best parts of both the LLC and C Corp taxes, like pass-through taxation, personal asset protection, and reduced self-employment tax liabilities. Unlike an LLC, though, companies with shareholders can also elect S Corp status, as long as the company is a domestic one with fewer than 100 shareholders.
Can I File An S Corp For 2019?
In order to make an S Corp election, you have to act early. In fact, S Corp elections need to be made at the very of the beginning of the year, so file soon if you want to take advantage of this tax filing status for 2020. S Corp paperwork needs to be filed within 75 days of the start of the year, so businesses have a few weeks before the 2020 deadline. Headed into the upcoming filing season, you’ll need to file under whatever your standard classification is.There are a few circumstances when it’s considered acceptable to file for S Corp status late. Specifically, the business needs to be able to show that they intended to file for S Corp status by the deadline and that the business met all other qualifications prior to the deadline. The good news is that the IRS tends to be generous in dealing with deadline issues, as long as the business comes to them within a reasonable time frame.
Making Your Election
If you do choose to file for S Corp status, the first step is to file IRS Form 2553. You cannot do this online. Form 2553 must either be filed by mail or fax, and if you choose to fax your forms, it’s important that you keep the original paperwork. Though they may not be rigid about the election deadline, the IRS is strict about Form 2553 being filed in its original.
Filing Your S Corp Taxes
Unlike making your S Corp election, you can file your actual S Corp taxes online. For larger companies, it may even be required. Overall, the process is quite simple.To file your S Corp taxes, you’ll follow most of the same procedures you would for any other business tax filing. The most important thing is that you have a skilled tax professional on your side. Unlike personal tax returns, filing S Corp taxes requires a degree of expertise that not all accountants will have, and it involves paperwork that they may not file often, even if they’re used to working with LLCs or C Corps.There are a number of important forms you’ll need to file to complete your small business’s S Corp filing. They include the following:
Form 1120S: This form is used by domestic corporations to determine income tax liability. To do so, your tax professional will record any income or gains, losses, deductions, and credits your business is eligible for. To ensure that your tax preparation professional can easily do this, be sure to organize all of your business's informationbefore the preparation process begins.
Schedule K And K-1: S Corps may have multiple owners, and you’ll need to summarize shareholder content on Schedule K and then account for each of them on separate Schedule K-1 forms. Each of these forms should break down the separate owners’ net earnings. For small business owners electing S Corp status, the Schedule K-1 form is the equivalent of an individual 1099 or W-2.
Schedule B: A component of Form 1120S, Schedule B is something of a miscellaneous form. Among the details included on Schedule B is information on stock holdings in other countries and other ownership interests, information about receipts below a given threshold, and other information total assets. Your accountant will be able to use Schedule B to determine whether your company also needs to file Schedules L or M-1, which are only required of companies with assets over a given amount.
Form 940: This is the Federal Unemployment Tax Act (FUTA) form, and all corporations with employees have to submit Form 940 with their taxes. This form ensures that employers pay into the safety net for individuals who become suddenly unemployed. Employees do not pay this tax and it should not be deducted from their income; only employers pay this tax.
Form 941: Similar to Form 940, this form accounts for quarterly income tax payments and FICA taxes. If you’ve ever filed business taxes before, you’ve likely filed both of those forms before and your accountant will have no problem with these.
Form W-2: Though LLCs without any employees may occasionally elect S Corp status, most companies that stand to benefit from this filing status have W-2 employees. Form W-2 records payments to the workers, and you’ll issue W-2s to those workers in advance of the filing period to ensure that they can complete their own taxes.
Form 1099: 1099 employees are independent contractors, and while you don’t pay taxes on these individuals, you do still have to report their work with you, in part to ensure the IRS can appropriately levy taxes on their income.
State-Based S Corp Requirements: Certain states have their own S Corp filing requirements, so consult with your business accountant about any additional paperwork you may be required to file with your state.
Filing – The Technical Side
As noted, you can file your S Corp taxes online, and there are several ways you can do this. You can do this online through the IRS’s free platform; you’ll be directed to the right one depending on your business’s size. You can also have your business’s tax preparation professional file your taxes online through their preferred platform. CPAs are generally well-versed in which platforms are secure and work best for business filings.
When choosing a CPA to handle your S Corp election and filings, it’s important to select a professional with the expertise to manage more complex business taxes, rather than conventional individual or basic LLC filings – and that’s not always easy. That’s why you need Taxfyle.
Taxfyle is different from other tax services because we work with both individual filers and accounting firms looking to diversify and manage their businesses. For businesses looking for filing support, this means that all you have to do is upload your documents and you’ll be paired with an accountant with the appropriate skills to address all of your concerns. It’s simple, transparent, and the best way to complete even complicated returns.
Don’t let your S Corp filing reach the IRS with missing pieces or errors. Learn more about Taxfyletoday and start filing early. As an owner, you already have all the information you need to get to work. A skilled accountant is out there waiting for you – it’s the match you’ve been waiting for all along.
Tax returns can be complicated, long, and overwhelming. This is especially the case if you're a business owner loaded down with a mountain of deadlines and responsibilities.The IRS gets it, and we do too.
If you can't get all of your forms in by the required filing date, you can file for a business tax extension to buy yourself a little more time.Does this sound like a step your company might need to take this year? We've got you covered. Read on to learn all about how business tax extensions work, and how to jumpstart the process today.
How Does a Business Tax Extension Work?
First, we need to be clear on one thing: A business tax extension simply gives you more time to complete your tax return.You still have to pay all of the income taxes and self-employment taxes you owe before the due date. Otherwise, you could risk facing late payment fines from the IRS. To avoid underpayment and late payment penalties, you'll need to pay at least 90% of the amount due.Not sure how much money your business owes?Your tax preparer can reference the estimated tax calculation worksheet on IRS Form 1040-ES to give you a rough estimate. Or, you can also check your previous year's return. Either way, make sure to factor into your calculation the self-employment tax due on your business earnings.Still, don't use this as a way to bide your time and save your dollars. The extension is simply a grace period in which you can assemble needed documents, find receipts, and do any other administrative tasks necessary to file complete and accurate business tax forms. Your business can file for one extension per tax year.Even if you don't owe any money on your business taxes, you might still need to do a little more work on your return. If that's the case, it's best to go ahead and file for an extension anyway.
How Do I File a Business Tax Extension?
The specific IRS form you'll use to file your business tax extension will depend on the kind of business you operate. Let's take a look at two of the most common ones.
IRS Form 4868
Are you at the helm of a sole proprietorship or a single-member limited liability company (SMLLC)? If so, you're used to filing your income taxes on Form 1040, Schedule C, where you include profits from your business into your personal income.
To file a business tax extension, you'll need IRS Form 4868.One workaround? You don't need to file this form at all if you simply pay part or all of your estimated income taxes online using one of the IRS' electronic payment options. You can also pay over the phone.Electric payment options include:
Electronic Federal Tax Payment System (EFTPS)
Credit or debit card
When you make your electronic payment, the IRS will automatically process an extension on your time to file. On the other hand, if you intend to pay your estimated taxes in any other way (including by mail), you'll need to include IRS Form 4868 in your request.
IRS Form 7004
Corporations and partnerships will file for a business tax extension using IRS Form 7004. Other entities that will file this way include:
Multiple-member LLCs filing as partnerships
In most cases, the IRS will automatically approve and process your business tax extension as soon as you pay your taxes and submit Form 7004.Note that the IRS doesn't normally reject requests for business tax extensions, regardless of whether you submit IRS Form 4868 or 7004. When they do, it's often because of an error on your request form, so make sure to double-check all of the data you enter.
Extension Application and Return Due Dates
Knowing which forms to use isn't helpful unless you know when to submit them. Let's take a look at the deadline to submit your extension application, broken down by business type. The first date explains when your extension application is due, and the latter date reveals the deadline to submit your extended return.In most cases, the extension is set for a six-month period. Note that the below list is based on partnerships, S corporations and C corporations that have December 31 year-end.
Sole Proprietor/Single-Member LLC: Application due April 15/Return due October 15
Partnership/Multiple-Member LLC: Application due March 15/Return due September 15
S-Corporation Business: Application due March 15/Return due September 15
Corporation: Application due April 15/Return due October
Can I Extend My State Tax Return?
You might also need more time to file your state tax return.In this case, you'll need to file an extension application with your state. You can check with your state tax agency or department of revenue to learn more about this process. This website includes a link to every state's associated taxing agency for ease of reference.
File Your Business Tax Extension With Us
Now that you know a little more about how the business tax extension process works, are you ready to file one for your organization?Doing so can help you breathe a little easier, take some stress off your shoulders and help make sure all of your information is correct.
The best part? Our professional tax preparers can take care of the entire process for you.oo learn more about our services and how our platform works. Why spend hours filing your taxes when you could do it in a few clicks? Let's connect and take this next step together.