Coming Soon! A brand-new Idiot’s Guides website, where you are the expert! Stay tuned for more details!

Browse Quick Guides by Subject

How to Report Business and Personal Tax Returns

How to Report Business and Personal Tax Returns

Share this with your friends

One of the most important aspects of running a business is making sure that you file your taxes properly. In this guide, we look at the different types of tax returns, sort out the forms you will need, and outline the tax filing obligations of the business owner, which vary greatly depending on how a business is structured.

Understanding Tax Types

Basically the small business owner has to worry about four different tax types: income tax, self-employment tax, employment taxes, and excise taxes.

You’ve lived with income taxes all your life, so you probably have a good understanding of what those are and how you file forms for them. You need to add some schedules to your 1040, but otherwise things won’t be that different.

Self-employment taxes are the ones that hurt the most. That’s because as a business owner you must pay both the employee and employer portion of the Social Security and Medicare taxes. You do get to adjust your gross income by deducting the employer portion from your gross income, thereby reducing your tax bill. You need to add Schedule SE to calculate and report these taxes.

Excise taxes are special taxes based on the type of business you run. You may or may not need to worry about these. These are the primary business types that might need to be concerned with excise taxes.

There are also fuel taxes and taxes related to foreign insurance. If you think your business may be impacted by excise taxes, you should download Publication 510, “Excise Taxes”.

Sorting Out the Forms

Most sole proprietors and partners file their income taxes using Form 1040. The business doesn’t have to file any additional forms if it’s owned by a sole proprietor. During the year you’ll have to pay estimated taxes using Form 1040-ES. You can download Publication 505, “Tax Withholding and Estimated Taxes” to learn more about this requirement.

A sole proprietor needs to add Schedule C, “Profit or Loss from Business,” which includes most of the information on the profit and loss (P&L) statement. There are some differences because of various tax breaks available to business owners, especially relating to equipment and vehicle purchases. Instructions for this form can be found in your 1040 package.

Businesses structured as a partnership have to file an annual information return on Form 1065. If your business is a partnership, you can learn more about tax rules in Publication 541, “Partnerships,”. As part of this form, the business fills out a Schedule K-1 for each of the partners.

Because the partnership pays no taxes, all income and expenses are passed on to the partners who then include the information on their 1040 returns. Partners need to add Schedule E, “Supplemental Income and Loss.” They use the information provided on Schedule K-1 to complete this form. Partners also need to pay estimated taxes and self-employed taxes.

If either the sole proprietorship or partnership chose to file as a corporation, or the business is structured as a corporation, then a corporate tax return would need to be filed, which is Form 1120. S corporations file 1120-S and pass the income and expenses on to their partners, who are treated as shareholders.

Meeting Filing Requirements

Filing requirements for most small business owners are the same as for others. Your forms are due the same time with some extension possibilities. Corporate returns for calendar year corporations are due March 15, instead of the April 15 deadline for personal returns and partnership returns.

The one exception to this rule is corporations that have filed for a fiscal year that is different than the calendar year. These corporations will need to complete the required year-end forms for employees in January and February. The business owner probably pays herself a salary and will receive a W-2, which would then be used to file personal taxes on a Form 1040.

The corporation must file its tax returns on the fifteenth day of the third month after the fiscal year ends. For example, if a business’s fiscal year is from September 1 to August 31, then Form 1120 would be due on November 15.

Here is a chart of the key forms grouped by business type.

Federal Taxes You Could Be Liable For Forms You Should Use
Sole Proprietor
Income Tax 1040 with Schedule C or Schedule C EZ, Schedule F for a farm business
Self-Employment Tax Schedule SE attached to 1040
Estimated Tax 1040-ES
Employment Taxes 941, 943 (if a farm business), 940 or 940-EZ, 8109 (not needed if you deposit taxes electronically)
Partnership
Annual Return of Income 1065
Employment Taxes Same as a Sole Proprietor
Partner in the Partnership
Income Tax 1040 with Schedule E
Self-Employment Tax Schedule SE attached to 1040
Estimated Tax 1040-ES
Corporation (C or S)
Income Tax 1120 or 1120-A (C corporation), 1120-S (S corporation)
Estimated Tax 1120-W (C corporation only) and 8109 payment coupons if taxes are not deposited electronically
Employment Taxes Same as Sole Proprietor
S Corporation Shareholder
Income Tax 1040 with Schedule E
Estimated Tax 1040-ES

Now that you know what to do, filing your business taxes should be a snap! Good luck!

From The Complete Idiot’s Guide to Accounting, Third Edition, by Lita Epstein, MBA, and Shellie L. Moore, CPA