Filing Your Business Income Tax Return: What To Know for 2025

It's an annual challenge: filing tax returns for your business. Business tax returns include filing federal income tax returns, state returns, and local returns for businesses and owners. This responsibility cannot be avoided. The best way to handle this task is to prepare and start immediately.

What Taxes Are Due for 2024?

Businesses must pay taxes on their profits. How a company is set up determines who pays the taxes.

• C corporations. The corporations pay income taxes on their profits.
• Sole proprietorships, partnerships, limited liability companies, and S corporations. Owners pay taxes on their share of business profits.

When Are Business Income Tax Returns Due for 2024?

Pay attention to the filing deadline for income tax returns. If you miss the deadline, you may incur late-filing penalties, which are not tax deductible. The following are federal income tax return deadlines for 2024 returns:

• For entities: Partnerships and S corporations reporting on a calendar year basis, which most do, must file their 2024 income tax returns by March 17, 2025. Calendar-year C corporations must file their 2024 income tax return by April 15, 2025. Limited liability companies (LLCs) with multiple members file partnership returns, and one-member LLCs file their returns with the owner's tax return unless they elect to be taxed as corporations. Sole proprietorships file their business return with the owner's tax return.
• For owners: Business owners must file their personal 2024 income tax returns by April 15, 2025.

Check your state for its filing requirements for business tax returns. Many states have the same filing deadlines as the ones for federal income tax purposes. You may have to file multiple state income tax returns if you do business in multiple states. Pay special attention to filing requirements for businesses doing online transactions. Some states consider this a sufficient connection ("nexus") to them such that state tax returns are required there.

The federal filing deadline for your business tax return and your personal income tax return may be extended if you are located in a federal disaster area. There is an automatic 60-day filing extension for disaster victims, but the IRS may grant even more time—up to one year—to file. For example, victims of Hurricane Helene, which began on September 22, 2024, and who had obtained a filing extension (explained below) for their 2023 income tax returns to October 15, 2024, were given until May 1, 2025, to file those returns. The IRS provides more information about filing extensions for disaster victims.

Can't Meet the 2025 Deadline? File an Extension for Business Taxes

If, for any reason, you cannot meet the applicable filing deadline for your business income tax return, you can obtain an automatic six-month filing extension just by asking for it; no explanation is needed. You must submit the request no later than the filing deadline. Entities use IRS Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns, to request a filing extension. Individuals (including sole proprietors, self-employed individuals, and one-member LLCs) use IRS Form 4868.

Getting more time to file the return does not give you more time to pay taxes due. It's advisable to pay as much as you expect to owe to minimize or avoid late-payment penalties. These penalties start to run from the filing deadline without regard to extensions.

How To File Taxes for a Business

Most business tax returns are e-filed. According to the 2023 IRS Data Book, nearly 91% of S corporation returns and more than 89% of partnership returns were e-filed during the government's 2023 fiscal year ending September 30, 2023. There are 3 excellent reasons for this:

1. E-filing is the quickest way to have a return processed and put the year behind you.
2. Business owners who report their share of business income on their personal return and are owed a tax refund will generally receive it more quickly by e-filing (and even quicker if requesting the refund be received through direct deposit).
3. Tax return preparers who file more than 10 information returns in the 2025 filing season must e-file, with limited exceptions.

Choose Your Tax Preparation Method

Decide who will prepare and file the return(s) as soon as possible. Will you use a CPA or other tax professional? Will the business returns be handled in-house by a company employee? Are you planning to prepare your business and personal returns using tax preparation software?

If you want to use a CPA or other tax professional, as most businesses do, and haven't been working with one, explore your options. The IRS has tips on choosing the proper tax return preparer for your situation.

If you work with a tax professional, schedule an appointment as soon as possible to discuss your situation.

Consider the Impact of Out-of-State Workers

For federal income tax purposes, the fact that many businesses use remote workers is not important. But, for state and local income tax purposes, this situation may create tax filing problems. Businesses usually file their state income tax returns according to "nexus," meaning where they have a business connection. Typically, this is where the company is physically located ("physical presence").

However, having workers in another state may create a nexus sufficient to require filing an income tax return and paying state and local taxes related to activities in that location.

Check the income tax rules for all states where employees work remotely (you know who they are through your payroll system) to determine if you have income tax obligations there.

Gather Your Tax Records

Tax return information is based on the record of income and expenses you have for the year. No matter where your tax return information is stored, whether it's on a desktop or cloud-based accounting system, it needs to be accessible to you or to a tax professional or other return preparer to complete your return. For example, payroll information with what the business paid in wages, compensation, and employment taxes — all of which factor into the tax return — should be easily found in your accounting system.

In addition to annual income and expenses tracked in the accounting system, be sure to have various records and other information on hand to help with return preparation:

• Prior year returns. These show potential carryovers that can be used on current returns to reduce tax liability. They include, for example, carryovers of net operating losses, general business credit, and capital losses. If you don't have prior returns, you can get a copy or a transcript from the IRS.
• Information about owners' investments. Because partnerships and S corporations pass through income and losses to owners, owners must know their "basis" in their company. If losses are passed through, they are deductible on an owner's return only to the extent of such basis. For example, an S corporation owner's basis is the amount invested in stock or loans made by the owner to the corporation. Basis information must be included on the tax return using Form 7203 (S Corporation Shareholder Stock and Debt Basis Limitations) and, where losses are claimed, on Schedule E of Form 1040 or 1040-SR. Partners compute their basis using a worksheet in the instructions to Schedule K-1 and also must report on Schedule K-1 of Form 1065 a partner's beginning and ending capital account. The capital account is the amount of capital contributed to the partnership during the year, the partner's share of the partnership's current year net income or loss as computed for tax purposes, any withdrawals and distributions made to the partner by the partnership, and any other increases or decreases to the capital account.
• Asset information. Businesses other than sole proprietorships must complete a balance sheet and report total assets on their tax return (small partnerships may be exempt from this reporting). Also, if the business sold assets, it's necessary to know their basis to determine gain or loss. For example, if the business sold a building, the basis used to determine profit or loss considers what the business paid for the building, depreciation claimed for it, capital improvements, and other adjustments.

Have Supplemental Tax Information Ready

Business deductions and credits must be substantiated by receipts, invoices, canceled checks, and other documentation. This supplemental tax information is not submitted with the return but should be retained and easily accessible in case of an audit.

In addition to receipts or other paperwork that proves expense amounts, the tax law requires additional documentation in some situations. Examples of required documentation include:

• Special recordkeeping for travel, meals, vehicles, and business gifts. Receipts alone are not sufficient to back up deductions claimed for these expenses. Required records are explained in IRS Publication 463.
• Substantiation for charitable giving. A written acknowledgment from the organization is required if the business donated $250 or more. This and other substantiation rules for charitable donations are in IRS Publication 526.

Consider Post-Year-End Tax Saving Strategies

Even when the calendar shows that last year has ended, there are still opportunities for obtaining additional tax deductions. These involve taking specific actions and making certain elections on tax returns. Here are some examples:

• Maximize retirement plan contributions. The deadline for making tax-deductible contributions to a qualified retirement plan is the extended due date of the return. Don't have a qualified retirement plan for the business? One can be set up and funded through the extended due date. More information about setting up and contributing to a qualified retirement plan and tax credits for doing so may be found in IRS Publication 560.
• Decide how to write off the cost of equipment. If the business bought equipment, machinery, or certain other property in 2024, there are several ways to deduct the cost. These include first-year expensing (Section 179 deduction), bonus depreciation, regular depreciation, and a de minimis safe harbor election. The decision on which method to use is made when the return is filed. The choice can affect taxes this year and in years to come. More information about these options is in IRS Publication 946.
• Check for research credit refunds. If your company engaged in research activities in 2024, you may not be able to use the full tax credit figured on research expenditures. The credit, part of the general business credit, is subject to a one-year carryback. If you're claiming a refund based on the research credit, include all information required on Form 6765.

When Are Business Taxes Due in 2025?

In addition to maximizing tax deductions, stay on top of tax filing and other important deadlines throughout the year. Keep in mind the following dates as you meet your obligations for 2024 and plan for tax savings in 2025:

Business Tax Changes To Be Mindful of When Filing in 2025

Whether you're an experienced business owner or just starting, tax credits and deductions continually change. Here are some new developments you should be aware of to ensure your taxes are correctly filed and you're not missing anything by the 2025 tax deadline.

Before taking any action, speak to your CPA, tax professional, or legal adviser to determine the best course of action for your business.

What's New on Returns Filed in 2025

Tax rules come and go. The changes to note on the 2024 tax year return include:

• Tax credits for buying clean vehicles. There are several tax credits for purchasing plug-in electric and fuel cell vehicles: a new clean vehicle credit, a previously owned clean vehicle credit, and a commercial clean vehicle credit. Each credit has its own eligibility rules and credit limits. The credits took effect in 2023, but the option to "sell" them to the dealer for a purchase in 2024 is new and requires additional reporting information. IRS FAQs explain these credits.
• Credit transferability. Certain green energy tax credits can be bought and sold for cash. For example, the alternative fuel refueling property credit used for installing charging stations can generate immediate cash by selling the credit to a buyer. IRS FAQs explain what needs to be done for transferability.
• NOLs. Owners of pass-through entities that experienced losses in 2024 may be able to claim a net operating loss deduction (NOL) on their personal return. There is a new tax form—Form 172, Net Operating Losses (NOLs)—for this purpose.

Adjustments for Inflation

The IRS adjusts dozens of tax items each year to account for inflation. For example, tax brackets have been adjusted for individuals, impacting what owners of pass-through entities pay on their share of business income. Some other items affecting businesses due to cost of living adjustments (COLAs) include:

• Standard mileage rate for business driving. If actual expenses aren't deducted, then the IRS-set rate is 67¢ per mile for 2024.
• Small employer's health insurance credit. Eligibility is partly based on wages; the amount has been adjusted for inflation for 2024.
• Gross receipts test. This test determines whether a business can use the cash method of accounting, forego doing inventory accounting, and for specific other purposes. The gross receipts test in 2024 is $30 million in average annual gross receipts in the three prior years.
• Sec. 179 deduction (first-year expensing). Instead of depreciating the cost of machinery, equipment, and other eligible property placed in service before the end of 2024, an immediate deduction up to the 2024 limit ($1,220,000, reduced dollar for dollar for purchases in excess of $3,050,000).
• Retirement plan contributions. The limits have increased for 2024 contributions to qualified retirement plans.
• Limitation on losses for noncorporate taxpayers. The limitation that caps losses for the current year has increased; excess losses become part of a net operating loss that can be used in future years.
• Qualified business income (QBI) deduction. The taxable income threshold above which the QBI deduction may be limited or barred has increased for 2024.
• Certain commercial buildings. The energy-efficient commercial buildings deduction limits have increased for 2024.

Other Reminders

When filing the 2024 tax return, remember these tax rules:

• E-filing. Some businesses must e-file their returns; others should consider doing so. This is especially true for those expecting a tax refund. The National Taxpayer Advocate said, "Paper is the IRS's Kryptonite."
• Estimated taxes for 2024. The first installment of estimated taxes for individuals and calendar-year corporations is due on the same day as 2024 income tax returns are filed. Obtaining a filing extension for filing the 2024 return does not give you more time to pay estimated taxes for 2025. Payment of taxes due for 2024 and estimated taxes for 2025 must be made separately. Check with your tax professional about new tax rules affecting 2025 taxes.

Begin Filing Taxes for Your Business, and Stay Current on Tax Laws

By starting sooner and doing some prep work, you can make filing taxes for your business more efficient and less stressful. With changes in the law and new IRS guidance, you'll want to consult with your CPA, tax professional, or legal adviser to ensure you understand what is required to stay compliant and learn about additional tax savings opportunities available through credits. Paychex offers payroll tax services that help your business navigate the complexities of filing taxes.