What are the different types of taxes that my small business may be required to pay?
All small businesses are required to file an income tax return. The type of return your business must file depends on your business structure.
At the federal level:
- C-corporations file Form 1120.
- S-corporations file Form 1120-S.
- Partnerships file Form 1065.
- Sole proprietors file a Schedule C (included with the owner’s individual income tax return).
In addition to filing a federal income tax return, most states also require a business to file a state income tax return. You can find more details about business structures and their filing requirements on the IRS Business Structures page.
If you have employees, there are additional payroll-related taxes to manage, including:
- Social Security tax.
- Medicare tax.
- Federal and state unemployment taxes.
- Any state or local payroll taxes that may apply.
It’s important to understand how to calculate and withhold payroll taxes before hiring your first employee, since you must begin withholding them as soon as payroll starts.
If you are self-employed, you may also be required to pay self-employment tax, which covers Social Security and Medicare contributions. See the IRS guide on self-employment tax for more information.
If you hire independent contractors, you typically do not withhold taxes from their payments. However, you may be required to issue Form 1099-NEC or Form 1099-MISC to both the contractor and the IRS to report the amount paid.
Depending on your type of business, you may also need to collect and remit sales tax to your state or local taxing authority. Sales tax rules have become more complex with the rise of e-commerce, so it’s important to review your state’s Department of Revenue website for current requirements.
Some states require businesses to file franchise tax returns. Despite the name, franchise taxes are not limited to franchised businesses — some states impose this tax on certain corporations or LLCs regardless of whether they operate a franchise.
How do I figure out which tax forms to fill out and file for my business?
The income tax return that your business is required to file depends on the type of business that you operate. Below are the various types of business income tax returns:
- Schedule C: This is filed by sole proprietorships. This type of income tax return is also filed by LLCs that have only one member and have not made an election with the IRS to file a different type of tax return.
- Form 1065: Partnerships file this type of tax return.
- Form 1120-S: S-corporations file this type of tax return.
- Form 1120: C-corporations file this type of tax return.
If your business has employees, you must also:
- File Form W-2 for each employee and a Form W-3 summary.
- File Form 940 to report federal unemployment tax.
- File Form 941 or Form 944 to report federal income and FICA taxes.
Businesses that hire independent contractors may need to file Form 1099-NEC with the IRS. Depending on your state, you may also be required to file sales tax returns.
What records am I required to keep for tax purposes?
Regardless of your business type, it’s important to retain documentation that supports your business income and expenses. You should keep:
- Receipts, invoices, and canceled checks.
- Credit card and bank statements.
- Purchase orders and sales contracts.
- Tax forms such as 1099-NEC or 1099-K.
- Financial statements (profit and loss, balance sheets, etc.) used to prepare your tax return.
If you deduct automotive expenses, maintain a mileage log that includes dates, locations, mileage, and the business purpose of each trip.
For meals and entertainment, record who attended and the business purpose of the event.
For travel expenses (such as airfare, hotels, or taxis), document the travel details and the business reason. These records are helpful if your business is ever audited.
To determine how long to keep your business records, review the IRS’s guidance on record retention. Some types of documents must be retained longer than others, especially if they relate to assets or ongoing audits.
When and how do I pay taxes for my business?
The due dates for business income tax filings depend on your business structure and whether you operate on a calendar or fiscal year.
In general:
- Sole proprietors (Schedule C) and C-corporations must file their federal income tax returns by the 15th day of the fourth month after the end of the tax year.
- Partnerships and S corporations must file by the 15th day of the third month after the end of the tax year.
If your business follows a calendar year, these dates typically fall in March and April, but confirm the specific deadlines on the IRS website.
If you have employees, you’re required to withhold payroll taxes and remit them regularly to the IRS and state authorities. Deposits are typically made on either a monthly or semiweekly schedule, depending on your total payroll.
Businesses often also make estimated quarterly tax payments to avoid penalties for underpayment.
Please note: This page offers general legal information, not but not legal advice tailored for your specific legal situation. Rocket Lawyer Incorporated isn't a law firm or a substitute for one. For further information on this topic, you can Ask a Legal Pro.
