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Clearing up some confusion about
filing business returns
By Cora M. Barnhart •
Bankrate.com
If death and taxes are certain, why is it so
complicated for a small business owner to file taxes? Questions
abound regarding who has to file, selecting a return and how to
file.
To begin, keep in mind that all
income taxes, business as well as individual, are "pay as you
go." This means that business owners who don't pay until tax
returns are due are likely to encounter trouble.
The Internal Revenue Service requires
business owners to pay these taxes as they earn income through the
year. The problem for many owners is that they usually don't have
tax money withheld from their wages the way employees do. If this
is the case, or if the amount withheld is insufficient, the business
owner has to make estimated tax payments.
What determines if estimated taxes are due?
It depends on the business
structure.
Sole proprietorships, partnerships, and S corporation
shareholders should make estimated
tax payments if they expect to owe at least $1,000 when they
file their annual returns. They should use Form 1040-ES, Estimated
Tax for Individuals, when they calculate and pay these taxes.
Tax
returns
If a taxpayer nets at least $400 in self-employment earnings,
he is going to have to file a tax return, if for no other reason
than to pay Social Security and Medicare taxes.
Report income and expenses from a sole proprietorship
by attaching either Schedule
C or Schedule
C-EZ to Form
1040. These schedules are used to determine the net loss or
profit from a business. If a person operates more than one small
business, he must attach a separate Form C for each business.
Form C-EZ is less complicated than Form C. The
IRS has three requirements for using Form C-EZ. First, the taxpayer
can only operate one business. Second, it must have earned a net
profit.
Finally, you must meet the requirements listed
on Part I of Form C. These include business
expenses of less than $2,500, having
only one business, having no employees during the year, using cash
accounting and holding no inventory. Also
you cannot use C-EZ if you claim deductions
for business use of your home or file Form 4562, Depreciation
and Amortization, for the business.
How
to file
Once a business owner prepares his tax return, filing it should
be pretty clear-cut, shouldn't it? Business owners have more options
than ever for filing returns, especially if they want to file a
paperless return -- or at least one with less paper.
The first electronic option involves IRS
e-file, or electronic
filing. Business owners who want to e-file can use a personal computer
or an authorized IRS e-file provider.
Taxpayers may also decide to use computerized
returns such as those included in software packages. Use IRS-accepted
software to complete the return and, because some software companies
may not include certain forms or schedules, double-check to make
sure the package contains the forms and schedules you need for your
particular business.
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