Small Business Tax Preparation Checklist

Tax time may not be every business owner’s favorite time of year, but business tax preparation is essential to get right. There are a lot of details when you’re filing a small business tax return that can be easy to overlook, especially when you’re doing your own taxes. In this tax prep checklist from Nav, you’ll learn what documents you need to file your taxes, how small businesses file their taxes, and which forms you’ll use (hint: It’s not one size fits all). 

What Do I Need to File My Taxes as a Small Business Owner?

As a small business owner, freelancer, or contractor, it’s ultimately your job to make sure you have your business’s documentation put together. Thus, you need to know exactly what you need to gather to be prepared to file business tax returns. 

Small business taxes can be confusing. There may be different forms and deadlines. It’s a lot more work collecting a paycheck and paying taxes as an employee. 

Most small business owners operate as pass through entities. That means they keep track of income and expenses and then report information when they file their personal income tax return. 

The business may require a specific tax form (like a Schedule C or  K-1) which may or may not be due before the owner’s personal tax return.

Here’s what you’ll need:

Basic business details

• Federal tax ID number, like your Employer Identification Number (EIN) or Taxpayer identification number (TIN or ITIN) if applicable
• Social Security numbers of all business owners
• Past three years of personal and business tax returns

Business income

• General ledgers
• Financial statements, like your balance sheet and income statements. This can also include invoices, bank statements, business credit card statements, and mileage logs.

Business expenses

You’ll need to keep copies of receipts for business expenses that you plan to deduct in part or in full. For example:

• Office supplies
• Technology, like computers
• Office rent and utilities (if applicable)
• Subscriptions
• Entertainment or travel expenses for business use
• Marketing or advertising spend
• Professional fees, like accountants, lawyers, or consultants
• Business insurance premiums
• Equipment and assets, including depreciation schedules
• Interest on small business loans
• Health insurance and Health Savings Account (HSA) contributions
• Charitable donations made by the business
• Business property taxes 
• State tax and/or local tax payments made by the business
• Mortgage interest (Form 1098) for business property
• Business licenses and other fees
• Education expenses for business-related training (Form 1098-T)
• Student loan interest if related to business education
• Retirement plans and IRA contributions for self and employees

Employment documentation 

• Employee forms
• • Form W-9 to certify you can be an employer
  • I-9s that show your employees can legally work
  • W-2s that show employee income
  • 1099s and 1099-MISC that show non-employee (independent contractors, consultants, etc.) income and relevant expenses
• Payroll reports, including details like hourly rate, hours worked, and how much you paid in payroll taxes
• Gross pay
• Total deductions you withheld from employees

In-home office documentation (if applicable)

• Rent or mortgage cost
• Total square footage of house vs. total square footage of dedicated office space
• Utilities
• Home insurance

Having all of these documents allows you to see how much taxable income your business has every year. Taxable income is how much of your income after deductions are taken out that you can be taxed on. 

How Do Small Business Owners File Taxes for the First Time?

Most small business owners use an accountant to file their taxes, whether that’s through an online tax software or a local certified public accountant (CPA). Business taxes are usually more complicated than your personal income tax return. There are many business tax deductions and tax credits that you can take but might not be aware of if you’re not a tax professional. Turning to a tax pro is usually worth it in the long run, especially because you’re lowering your chances of an audit by using a professional. An accountant may even save you more than their professional fees cost. 

Your tax filing process and the needed documentation will differ depending on your business structure, whether you’re a sole proprietorship, an LLC, an S-corp, or a C-corporation. 

For more, here’s everything you need to know about business taxes. 

What Are the 4 Basic Types of Business Taxes?

There are four types of business taxes that every small business owner needs to be aware of. Keep in mind that you may not need to file them all. 

1. Income tax: Tax you pay on what your business earns. 
2. Estimated tax: Tax paid by sole proprietors, partnerships, and S-corps each quarter when they estimate they will owe $1,000 or more in taxes.
3. Self-employment tax: Tax taken out for Social Security and Medicare.
4. Employment tax: If you have employees, this tax will cover their federal unemployment, Social Security, and Medicare.

You may also have to pay an excise tax if your business imports or exports certain chemicals, fuels, or other substances.

Putting due dates in your calendar for each kind of tax helps to avoid missing deadlines.

Small Business Tax Preparation Checklist

Whether you’re going to file your business taxes on your own or use an accountant, it’s necessary to know the steps involved so you can prepare ahead of time. Here are the four basic steps of filing your business taxes.

Step 1: Learn which taxes you need to file

Look through our list of the types of tax payments businesses need to make to see where you fit in. You may need to file multiple types of taxes. For example, if you run a small business where you employ workers, you’ll need to file your business’s taxes and and also file payroll taxes.

Step 2: Find the right tax forms

Here are the most common tax forms you’ll need to finalize your year-end tax returns based on your business entity type. If you elected for your LLC to file as a partnership or corporation, you’ll use the forms for those entities when filing.

• Sole proprietors and single-member LLCs: Schedule C (Form 1040)
• Partnerships: Form 1065
• S-corporations: Form 1120S
• C-corporations: Form 1120
• Pass-through entities: Schedule K-1
• Employers: Forms W-2, Form W-3, 1099-NEC, Form 940, and Form 941
• When applicable: Accompanying Form 1096

It’s a good idea to check with a tax professional even if you’re filing on your own just to make sure you aren’t missing any necessary forms for the upcoming tax season.

Step 3: Prepare your documentation

Once you know which forms you need to fill out based on the type of business you run, check out our list above of the most common documents you’ll need to file.  If you’re not hiring a tax professional, make sure you read through the IRS instructions for each form in case there are additional forms needed. Finalize all year-end bookkeeping before filing.

Step 4: Find all your deductions and credits

Tax deductions (a.k.a. tax write-offs) lower your taxable income — so less of the total amount of money you made can be taxed — while credits are dollar-for-dollar discounts on your tax bill. Take a look at the list above of the expenses many businesses deduct on their tax form. The IRS also provides a breakdown of all the expenses businesses can deduct, but it’s in tax speak so it’s a little confusing. Businesses also can get credits, which are detailed in this IRS guide. 

Step 5: File your tax returns

If you operate as a sole proprietorship or have a business entity that is not considered a “disregarded entity” (such as a single member LLC) you will file your business taxes with your personal income tax return that is generally due April 15, using Schedule C.

Otherwise,if you operate as a multi-member LLC or an LLC or corporation that has elected S corp status with the IRS, you’ll need to usually file your income tax forms for your business by an earlier deadline: March 15. That gives the business time to distribute necessary forms to the members or shareholders. 

Information from those forms (such as a K-1 for an S corporation) will then be used along with other information about your personal income and expenses when you file your personal tax return. 

You or your spouse (if you file jointly) may have other sources of income you will include with your business income when you file your personal income taxes. This can affect your overall tax rate and how much you’ll pay in taxes. Other sources of income include:

• Wages
• Alimony
• Gambling winnings
• Unemployment income
• Social Security benefits (reported on form SSA-1099) 
• Interest income reported on a 1099-INT, or 
• Dividends reported on a 1099-DIV

What if you can’t meet the deadline?

First you can check if there are any deadlines that have been pushed back. For example, if you live in an area affected by a natural disaster, you may have more time to file. 

If not, you may request an extension. Just keep in mind an extension doesn’t give you more time to pay. Interest and/or penalties may accrue. 

If you want to get a tax refund by direct deposit, you’ll include the routing number of your bank account. Similarly, you can opt to pay any tax you owe electronically by providing that information and opting into electronic payments. 

Many small businesses use e-filing to file their tax documents online. It’s efficient and fast.

Business Tax Preparation Frequently Asked Questions

Do I have to pay taxes if I just started my business?

Yes, as long as you make more than $400 from your business, you have to file taxes. You’ll need to pay quarterly taxes if you expect to owe over $1,000 in federal taxes. The tax rate for self-employed individuals is 15.3% at the time of writing.

Can I do my small business taxes myself?

It’s possible to file your small business taxes on your own, but it may not be a good idea. There are many deductions and credits that businesses can take — as long as they know about them. Unless you have an accounting background, you will likely lose out on tax savings for your business. Additionally, mistakes on your tax return could lead to an audit and potential financial issues in the future.

Do I file LLC and personal taxes together?

That depends on how you choose to be taxed as an LLC. A single-member LLC is automatically considered a disregarded entity, which is taxed like a sole proprietor. Or an LLC can file paperwork with the IRS to be taxed like an S-corp or C-corp, where you’re taxed like a corporation and pay an income tax. Corporations often enjoy more tax advantages, however. Ask a tax professional which taxation method would benefit you the most.

What if I have rental property?

If you rent real estate such as buildings, rooms or apartments, you normally report your rental income and expenses on Form 1040 or 1040-SR, Schedule E, Part I.