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Tips for Businesses Filing Taxes for the First Time

Payroll
Article
02/20/2017

If you're a new business owner filing a tax return for your business for the first time, the obligation may seem daunting. However, once you gain a basic understanding of what you have to do and make plans on how to do it, you'll be fine. Just think of the reporter's basic rules of who, what, where, when, why, and how. The following discusses these rules for federal income tax returns. You may also have state income tax return responsibilities (which are not discussed here).

Who Has to File

If you're the owner of a business, it's your responsibility to file an annual return for the business. If you're the sole owner, then it's all up to you.

If you have co-owners, decide among yourselves who will have the return prepared and filed. Only one person must sign the return on behalf of the business. For example, in an S Corporation, the return is signed by the president, vice president, treasurer, assistant treasurer, chief accounting office, or any other corporate office authorized to sign.

If you started your business in 2016 and weren't operating for the full year, you still must file a tax return.

What Forms to File

The IRS form that must be filed depends on the type of entity you use for your business. The following chart shows the form to be used:

Type of Entity

Form

Sole proprietorship (including independent contractors)

Schedule C or C-EZ Form 1040

Limited Liability Companies – one member

Schedule C or C-EZ Form 1040*

Limited Liability Companies – two or more members

Form 1065*

Partnerships

Form 1065

S Corporations

Form 1120S

C Corporations

Form 1120

*LLCs can elect to be treated as a corporation and taxed as such. The treatment listed above assumes that no such election has been made

If you are filing Form 1065 or 1120S, in addition to filing a return with the IRS, you must also send Schedule K-1 to each owner. This schedule lists the owners' share of business income, deductions, credits, etc. that are reported on the owners' personal returns.

Where to File

Regardless of the type of form used, it can be filed electronically with the IRS. If you are filing Schedule C or C-EZ with your Form 1040 and use a paid preparer, most likely it will be filed electronically.

If you file a paper return with the IRS, the IRS filing center to which the form is mailed depends on the business's location. This is the same even if the owners live elsewhere. You can find the mailing address in the instructions to the form. If you are sending the return by a private delivery service (e.g., FedEx or UPS), don't use the address in the instructions; find the correct address at IRS.gov (search "private delivery service").

When to File

To avoid late filing penalties you must file a return by the due date set by law. The due date depends on the return being filed. The following deadlines for 2016 returns assume that the business reports its income and expenses on a calendar-year basis:

Type of Entity

Form

Sole proprietorship (including independent contractors)

April 18, 2017

Limited Liability Companies – one member

April 18, 2017

Limited Liability Companies – two or more members

March 15, 2017

Partnerships

March 15, 2017

S Corporations

March 15, 2017

C Corporations

April 18, 2017

You can obtain a filing extension by request. The request must be made by the filing due date listed above. If you own a pass-through entity (partnership, LLC, S Corporation), you must report your share of business income, expenses, credits, etc. on your personal return, which must be filed by April 18, 2017.

If you submit the request for a filing extension on time, you have until the filing date to file your 2016 return:

Type of Entity

Form

Sole proprietorship (including independent contractors)

October 16, 2017

Limited Liability Companies – one member

October 16, 2017

Limited Liability Companies – two or more members

September 15, 2017

Partnerships

September 15, 2017

S Corporations

September 15, 2017

C Corporations

September 15, 2017

Schedule C filers make the request for a filing extension on Form 4868. All other entities use Form 7004.

As an owner of a pass-through entity, you'll need to obtain a filing extension for your personal return if the business obtains its own filing extension. This will give you time to receive the information you need from the business to complete your personal return.

Why You Must File

Businesses are required to report their activities annually to the IRS on their income tax returns. Unlike individuals who are required to file only if their income is above set amounts, business filing is mandatory in all cases. This is so even if the business had no income.

If you don't file on time, there are late filing penalties, and these penalties can add up. For example, for Forms 1065 and 1120S that are not filed on time, the penalty is based on the number of owners and the months that the return is delinquent.

How to File

Decide whether you'll prepare your own return (by hand or with software/cloud solutions) or use a paid preparer. The vast majority of small businesses use paid preparers for this task. If you join the majority, as soon as possible, you should line up the preparer you'll use and discuss how to proceed. If you don't know a preparer, or don't have a recommendation for one, you can find one through the IRS's Directory of Federal Tax Return Preparers.

Filing tax returns is just another of the many responsibilities that fall on business owners. Understanding how to go about filing your first return can alleviate anxiety and help you fulfill your obligations.

barbara weltman

Barbara Weltman is a tax and business attorney and the author of J.K. Lasser's Tax Deductions for Small Business as well as 25 other small business books. She has been named a Small Business Influencer for five years in a row.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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