Small business tax guide: tips for success

Taxes for small businesses: what you need to know

Two of the best things you can do as a small business owner are to invest in accounting/bookkeeping software and master the basics of small business tax filing. Whether you have a CPA or DIY your taxes, these two steps can help you stay organized, avoid fines, and take the stress out of tax season—and Capital One Business Deals can help you with both.

Below, Capital One Business Deals shares small business tax tips to help you confidently navigate the season (and the rest of the year).

How to obtain tax identification numbers (TIN)

Just like you have your own social security number (or, tax identification number [TIN]), your business has an employer identification number (EIN). This lets you pay employees, open a business bank account, and more. If you haven’t already, request an EIN for free with the IRS. If you live in a state that imposes income tax, you’ll need a state tax ID, as well.

Tip: When you apply for an EIN, you’ll be asked if you plan to hire employees. How you answer is important and could determine your tax filing requirements for the year, even if you haven’t hired your first employee. If you say yes, the IRS will note this designation and require you to file a zero return (Form 941).

What tax forms do small businesses need?

So many numbers—what do they mean and what are they all for? The forms you need to file depend on your small business structure, so let’s start there.

Whether you’re a sole proprietorship, LLC, LP, C-corp, non-profit, or otherwise, structure will determine tax obligations and the forms you’ll need. For example, if your small business is an LLC, you’re considered self-employed and could owe personal, Medicare, and social security contributions and corporate taxes.

Most tax preparation software will ensure you’re getting the forms you need, but let’s run through the most common and what they do:

Form 1040, U.S. Individual Income Tax Return

This is the starting point of your tax return. It will come with a handful of attachments that you may be required to fill out: deductions, dividends, business expenses, capital gains and losses, and self-employment tax. More on self-employment taxes next.

Form 1120, U.S. Corporation Income Tax Return

If you’re a C corporation or an LLC filing as a corporation, this form is what you’ll file to pay quarterly estimated payments (rather than a lump sum, as you would with your 1040). You’ll need to assemble a few things to file this, including your EIN, assets, income, gross receipts, deductions, and more.

Form 1120S, U.S. Income Tax Return for an S Corporation

If you’re an S corporation, you’ll file an 1120S annual tax form—and note this allows you to avoid filing. An S corporation means shareholders are involved, so a Schedule K-1 will be included.

Tip: If you run an S-Corp, you must show that you’re paying yourself a reasonable salary as an owner, but this isn’t required as an LLC or sole proprietorship.

Form 1065, U.S. Return of Partnership Income

If your business is a partnership, you’ll declare profits, losses and more of that partnership with a Form 1065. Filing this form means getting together year-end statements that cover profits and losses for the year. Note that you and your partner will file Schedule K-1s with your personal tax returns, but file a single 1065 for the partnership.

The different types of taxes and what they're used for

Again, your business structure, how you operate, and if you have employees will determine the different types of taxes your business owes, which can include:

Income tax

Taxes on what you earn. Corporate income tax is calculated against revenue minus costs.

Employer tax

Taxes withheld from employee wages or salaries to cover Social Security and Medicare taxes.

Self-employment tax

How individuals like contractors and small business owners contribute Medicare and Social Security taxes, since they aren’t being withheld by an employer.

Payroll tax

Taxes withheld from wages and salaries.

Estimated tax

Quarterly payments of income or self-employment taxes, when these taxes are not automatically withheld.

Capital gains tax

Tax on profit earned from an asset that increased in value and you sold.

Excise tax

A tax most often imposed on businesses for certain items or activities.

Estimating and paying estimated tax payments

Depending on your business structure, you may owe year-end, lump sum tax payments or be liable for estimated tax payments. Estimated tax payments happen each quarter and are due by a specific date. If you miss these, fees can be charged, assessed based on how late and by how much you owe.

Estimated tax payments can be calculated by:

• Filling out the Form 1120 to calculate your estimated payments.
• Pay 100% of last year’s estimated amount to avoid a penalty.

You or your accountant can submit these payments.

Tips for keeping good financial records

1. Partner with an accountant.

Engaging an accounting pro to help you year-round (or at tax time) is a great investment if you can do it. But, at the end of the day, your business’s finances are your responsibility—be empowered to know them inside and out!

2. Maintain a better record-keeping system.

Keeping good records is like having good hygiene for your business. Run through our Small Business Year End Checklist before the new year and start on the right foot with the following tips:

3. Invest in scalable, robust invoicing or accounting software.

A gold-standard tool like QuickBooks helps standardize inputs, integrates with your POS and other systems, and builds in accuracy and compliance. Your accountant will thank you!

4. Categorize line items correctly.

Many are, but not every payment is classified as an expense—like loan payments and mortgage payments, for example. Get these straight today for more accurate deductions and taxes tomorrow.

5. Bank reconciliations can be more reliable than bank statements.

Monthly or quarterly bank reconciliations are more reliable than statements, which may not be the most accurate reflection of your cash position. Do regularly compare your books with your bank to see if the two balances match. If they don’t, it’s time to look for errors and correct them before tax time.

6. Know that accounting software isn’t foolproof.

It can certainly help entries be clean and correct, but little mistakes could be big headaches come tax time. Know the ins and outs of your software and check in with your accountant, if you have one.

7. Accounting types (cash and accrual) can impact how you file.

Cash accounting reports payments made into and out of the business, such as expenses and income. Accrual accounting reports earnings, which aren’t always a payment. If you have employees or gross over $1 million in receipts a year, you’ll need the accrual method.

8. Catalog assets.

Keep accurate records and values of any tangible property or cash that adds to net worth as an asset, including inventory, trademarks or copyrights, real estate, or office equipment.

Small business expenses that can be deducted

What are deductible business expenses , what are write-offs, and how do they differ from deductions? Knowing the difference can help you keep accurate records, reduce the amount of taxes you owe, and deduct the correct amounts when filing your taxes.

• Advertising and marketing
• Business licenses and permits
• Employee salaries
• Insurance
• Rent or mortgage interest*
• Supplies and equipment

A good rule of thumb: any expense you charge in the course of doing business should be logged as a deductible expense, or a write off. At tax time, your CPA or tax preparer can help make the final call on what counts.

*Note: Mortgages and other loans are considered fixed, long-term liabilities, which are debts that can detract from net worth. These differ from bills and accounts payable, which are short-term liabilities.

When and where to file your tax returns

When to file your tax return

Tax season begins in late January, but there are plenty of dates to note between then and April: when to send out W-2s to your employees, deadlines for 1099s, and tax payment due dates, and more.

When you need to file your taxes depends on your business structure, which we touched on above. Here’s a great tax deadline checklist to refer to. Some deadlines come as early as March, while others are due in April (extensions aside). Outside of January, estimated tax payments are due quarterly, so mark your calendars and set reminders.

Where to file your tax return

Where to file your tax returns depends if you’re engaging an accounting professional like a CPA or doing it yourself with tax return software, such as TurboTax. Certain forms can be filed online or by mail, but note that online through the IRS e-file is faster and can be required for corporations reporting more than $10 million in assets.

Ease the burdens of tax season with Capital One Business Deals

Growing your small business means expanding your financial records and responsibilities. If you don’t have a full-time accounting or bookkeeping professional, you can stay on top of reporting with invoicing and accounting software. It’s the gold standard for you in terms of ease of use, but the IRS considers it a standard in small business audits, too.

Get great deals on finance and accounting software for your small business from Capital One Small Business Deals and tackle tax season with confidence and ease.

This article is for informational purposes only and should not be considered as tax or financial advice. You should always confer with your accountant or financial consultant before making a financial decision for yourself or your company.