It’s easy to make a mistake on your taxes, especially if you are a new business owner or running a small business. The IRS, however, does not easily forgive and rarely overlooks even honest mistakes. Before you file, dot your i’s and cross your t’s by making sure to use the correct tax forms.
“The IRS website is a great resource for small business owners. They provide guidance on how to choose a tax preparer and on what type of forms to file,” says certified public accountant, Brooklyn-based Oleg Gorshkov.
According to the U.S. Small Business Administration, the first step towards determining your federal tax obligation is by identifying your type of business. These include:
- Sole Proprietorship
- S Corporation
- Limited Liability Company (LLC)
You will also have to determine if your small business will be defined as a hobby by the Internal Revenue Service (IRS). This is done by determining a number of criteria, including your profitability margins over the past three to five years.
Freelancers often make the mistake of thinking they need to file their taxes as small businesses. “Freelancers don’t require a legal structure or have liability concerns, so do not need to open up a corporation or file forms as if they are a small business,” says Gorshkov, who urges the need to work with a professional who understands your type of work. “Working with a professional will help save you money and filing fees in the long run,” he adds.
Many small businesses are categorized as sole proprietorships or partnerships. Once you determine the type of business entity you own, you will then be tasked with determining the type of tax return form you are required to file.
The federal government levies four specific types of business taxes. They are:
- Income tax
- Self-employment tax
- Excise Tax
- Employers Tax
Forms for filing and paying business taxes are broken down into specific categories. These include:
- Starting and Operating a New Business
- General Business Expenses
- General Forms
- Specialized Forms
- Employee Benefits
Downloadable forms within each category plus complete instructions for using them can be found on the IRS website here.
Corey Whelan is a freelance writer in New York. Her work can be found at Examiner.com.