BBB: Four key steps to take as tax season gets underway

Quarterly tax requirements are for business owners of C Corporations owing more than $500 in taxes and owners of other business structures owing more than $500 on their personal forms. Quarterly taxes in 2024 will be due Jan. 16, April 15, June 17 and Sept. 16 for the first three quarters, and Jan. 15, 2025, for the fourth quarter. A penalty can be issued for any late payments.

The IRS tax calendar helps businesses keep track of these and other due dates with email reminders one to two weeks in advance.

Here are a few more tips small businesses can implement to prepare for the tax season:

Know the type and amount of state and federal taxes

To start, know the different types of small business taxes paid to the state and to the IRS. Sole proprietorships, partnerships, S Corporations and C Corporations may be responsible for four main types of taxes, including income, self-employment, employment and excise, which are paid on specific goods and services.

Income taxes are based on what a business earns. C Corporations pay double taxation, both on their earnings and the dividends they pay to shareholders, at an amount of 21%. The other business types, known as flow- or pass-through entities, report income at the entity level that then flows through to the individual’s tax return on Schedule K-1.

Sole proprietors and active partners earning more than $400 from their businesses are required to pay self-employment taxes. These taxes cover both the employee and employer parts of Social Security and Medicare taxes — the rate is 15.3% for 2024.

Businesses with employees also are required to pay employment or payroll taxes, including Social Security and Medicare, federal unemployment taxes and, in some cases, state unemployment taxes.

Businesses need to know their federal and state tax obligations, since tax laws vary by state and business structure. To calculate the amount of taxes owed, some tools can be helpful, such as the IRS Small Business and Self-Employed Tax Center and USA.gov’s Small Business Tax Information for federal taxes and by visiting individual state Department of Revenue websites for state taxes.

Know which IRS business tax forms need to be filed

To report small business taxes, identify the business structure and the correct form that goes with it to report profits, losses, deductions and credits to the IRS.

Some of the common IRS forms include Schedule C for small proprietors, who use the form and Form 1040 to report income, and Schedule K-1 for owners of pass-through entities like S corporations or partnerships to report income and expenses. There’s also the 1099-MISC form for reporting rental income, royalties, prizes and awards, as well as several other forms like the 1099-NEC and Forms 1120, 1120-S, 1065 and 720.

Create a tax filing calendar

In addition to quarterly taxes, business owners have other tax deadlines to meet. In 2024, businesses needed to send out W-2s to employees and 1099s to independent contractors by Jan. 31 and submit copies to the IRS.

The deadline for businesses to file their information return using a 1099 or 1096 is Feb. 28. Partnerships, S corporations and multi-member LLCs have until March 15 to file their tax returns. For single-member LLCs, sole proprietors, and C corporations that follow the standard calendar year for accounting, that date is April 18.

Gather the necessary business tax return documents

Business owners need to provide or have on hand several documents when filing their taxes. They also need to retain up to three years prior of their state and federal tax returns.

For business income taxes, small businesses need several forms of paperwork, including accounting journals and ledgers, balance sheets and income statements, bank deposit slips, account statements, invoices received and paid, credit card statements, and vehicle and mileage logs.

Businesses also need receipts for their business-related expenses for supplies, reoccurring operational costs, equipment and assets, marketing and advertising costs, entertainment and travel, professional fees and insurance policies.

For home office deductions, additional information is required, such as the square footage of the office space versus that of the home and the mortgage interest or rent amount paid.

Two final pieces of advice for filing small business taxes are to consider hiring an accountant or tax preparer and being aware of scams.

Accountants have a deep understanding of the tax code and the types and percentages of deductions, plus they can use income and expenditure data to create a financial report.

Business owners unfamiliar with accounting or who don’t have the time to keep track of their accounts should consider investing in a qualified accountant or tax preparer. If they have a straightforward business model and keep well-organized records, they may be able to do the recordkeeping and filing in-house.

Accountants and tax preparers can help identify deductions, claim write-offs, avoid overpaying on their taxes or prevent any IRS penalties for errors in filing. The BBB offers a list of trustworthy accountants and tax preparers at BBB.org.

Business owners also need to be aware of tax scams designed to steal money or their business identity. They can start by understanding how the IRS works and what they need to do to protect any sensitive tax, business and personal information.

To avoid tax identity theft, businesses can file their taxes early. They can carefully check out IRS and state websites to make sure they are actual government sites. And they should be aware that the IRS doesn’t contact taxpayers by email, text or social media to request personal or financial information.

Knowing all the details of tax preparation and filing will help businesses keep their taxes on a schedule, while also saving money from not making any overpayments. They then can focus on what they do best, which is their business.