The Beginner’s Guide to Filing Small Business Taxes: A Step-by-Step Process

The words "tax season" are enough to send many small business owners into a panic. Thoughts of audits, paperwork, and the potential of owing thousands of dollars to the IRS can be overwhelming.

Fortunately, it's entirely possible to make the process of filing small business taxes easier by breaking it down into manageable steps—and those steps are exactly what we'll provide you with today. This guide will go through each basic step so you can approach your taxes with confidence and accuracy.

We'll also explain how PayStubs makes tax season much less stressful with our user-friendly payroll solution. We designed our payroll software to help business owners generate accurate, customized payslips quickly and easily.

Do I Count as a Small Business?

Before we get into those specific steps, however, it's essential to make sure you classify as a small business in the United States if you plan on filing your taxes as such.

A “small business” is one classification, but there are further classifications under this umbrella like sole proprietors and partnerships which we’ll discuss later.

Whether or not a business is considered small depends on how many people it employs and, sometimes, its profits. Some different sources and bodies dictate what defines a small business for various purposes. 

A primary example is the Small Business Administration (SBA).

The SBA considers any business small if it has fewer than 500 employees.

Along with this classification, the SBA also explains that to be a small business, you must also:

• "Be a for-profit business of any legal structure
• Be independently owned and operated
• Not be nationally dominant in its field
• Be physically located and operate in the U.S. or its territories."

Another example is HealthCare.gov's definition used for Affordable Care Act compliance and employer health insurance requirements. In that case, a small business has only 50 or fewer employees.

Since we're talking about small businesses and taxes in this case, the "500 or fewer employees" guidelines apply to businesses in most states.

However, it's worth noting that some state governments may have different rules when classifying businesses as small. Be sure to research those specific requirements before diving into tax preparation.

Once you're confident your business qualifies as a small business, we can move on to the basic steps of filing small business taxes.

The Beginner’s Guide to Filing Small Business Taxes: A Step-by-Step Process

While you'll want to consult with a tax professional regarding more complex issues, this guide can provide a comprehensive overview of the process.

1. Gather your documents

Before you start your taxes, you'll need to gather all the documents relevant to your business and its income and expenses for the year. This includes traditional records such as invoices, bank statements, and credit card statements.

You'll also need to get your W-2s from employees, if applicable, and any 1099 forms if you've worked with contractors in the past year.

All you need to do is correctly fill in the needed information, including company and employee information and wage details. Then, we generate your Form W2 error-free and ready for you to file! 

Once these items are ready, it's time to move on to step two!

2. Classify income and expenses

The next step is to classify your income and expenses. This helps you determine which deductions you're eligible for and what type of tax forms you must file.

Some of the categories you'll need to look at include:

• Wages, salaries, and tips
• Home office expenses
• Office supplies and equipment
• Travel expenses
• Business insurance premiums
• Professional services fees

You'll also want to separate capital expenditures—such as purchasing property or equipment—as these purchases have special treatment under the law.

For example, any depreciation on a large purchase can be spread out over multiple years, decreasing what you owe in taxes each year. 

This is why keeping track of these expenses is vital, as it can make a big difference when filing your taxes—and running your business in general.

3. Choose the right tax forms

You'll also need to choose suitable forms when filing your taxes—this is easier to do once you’ve classified your business properly as discussed.

For example, for individual tax returns, the most common turn you'll need to complete is the IRS Form 1040. This reports an individual's income, deductions, and credits.

However, depending on your business's classification, you must file different tax forms.

For example, most partnerships fill out Form 1065 with the IRS, but corporations file Form 1120. If you're a sole proprietor or self-employed, you must file a 1040 Schedule C or 1040 C-EZ forms (if you meet specific qualifications).

If you have employees, you must complete any applicable state withholding forms and federal payroll forms such as the 941 (AKA the Employer's Quarterly Federal Tax Return).

4. File on time

Once you have all your forms filled out and ready to go, the last thing left is to ensure you file on time. The IRS has precise deadlines for filing taxes, and you don't want to miss them!

If you do happen to miss a deadline, make sure you get in touch with the IRS as soon as possible and explain the situation. Often, they will be willing to work with you to ensure your taxes are filed correctly and on time.

This year, the tax filing deadline to submit your 2022 tax returns (or filing extension) and pay taxes owed is Tuesday, April 18, 2023.

What Else Should I Know About Small Business Taxes?

We've equipped you with a broad overview of the process for filing taxes filing small business taxes. Still, you should know some other things to ensure you're filing your taxes correctly and as efficiently as possible.

Don't miss out on deductions

We mentioned deductions already, but it's worth emphasizing again: Make sure you take full advantage of any deductions available to your business! 

This includes medical insurance premiums, retirement savings contributions, and more. Some commonly overlooked deductions include transportation expenses, meals and entertainment costs, professional development fees, and state and local taxes. 

Remember to keep good records of all your expenses and document everything properly.

Be aware of new tax laws

Tax laws often change, so staying current on the latest regulations and how they may affect your business is crucial. An excellent way to do this is by signing up for updates from the IRS website or subscribing to a trusted financial newsletter—of course, your accountant or bookkeeper can help too!

Don't forget to utilize technology

Tools like PayStubs are available to make tax time much more straightforward. Turn to technology to help you track and manage business expenses, file returns, and research other options that might benefit you.

Stay organized year round

Finally, staying organized throughout the year is essential when it comes time to file taxes. All those documents you collected in step one? You need to keep track of them for at least three years after filing in case of an audit.

Conclusion: Filing Small Business Taxes with PayStubs

We hope this guide has given you the confidence to tackle your small business taxes. By keeping track of any deductible expenses and staying up to date on the ever-changing tax laws, you can ensure filing taxes is a breeze—or at least, less of a headache.

Remember to keep up with new tax laws, maximize deductions, stay organized year-round, and utilize software—like PayStubs—to make filing easier.