2021 Tax Deadlines

Keep this chart handy or copy the relevant parts of it into your calendar so you won’t miss a due date throughout the year.

February 1, 2021:

W-2 Filing: Wage and tax statement for full- and part-time employees. These are normally due on January 31st, but since this is a Sunday, the deadline will fall the following day. 

1099s: Are issues to independent contractors. You will need to issue them a 1099-NEC. Both Copy A and Copy B are due at the same time.

February 12, 2021:

The IRS will begin accepting 2020 tax returns starting 2/12/21.

March 1, 2021:

Form 1099-MISC if you are paper filing.

S Corporation Tax Filing 

March 15 Submit Form 1120S Income Tax Return

March 15 File for an extension

Partnership Tax Filing

March 15 Submit Form 1065 Income Tax Return

March 15 File for an extension

C Corporation Tax Filing

April 15 Submit Form 1120 Income Tax Return

April 15 File Form 7004 Application for an Automatic Extension of Time

LLC Filing as Corporation Tax Filing

April 15 Submit Form 1120 Income Tax Return

April 15 File Form 7004 Application for an Automatic Extension of Time

Individual Tax Filing

(Sole Proprietor, Independent Contractor)

April 15 Submit Form 1040, 1040A or 1040EZ Income Tax Return

April 15 File for an extension

Estimated Quarterly Tax Payments

Q4 2020 (January 15) Send final 2020 payment with Form 1040-ES Payment Voucher 4

Q1 2021 April 15  for first 2021 payment with Form 1040-ES Payment Voucher 1

Q2 2021 June 15  for  second 2021 payment with Form 1040-ES Payment Voucher 2

Q3 2021 September 15 third 2021 payment with Form 1040-ES Payment Voucher 3

 

Some types of businesses may have different or additional deadlines and requirements. Consult with your accountant or tax advisor early in the year to make sure you meet your obligations.

 

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

The Ultimate Tax Deductions Checklist for Small Business Owners

Are you claiming all the income tax deductions you’re entitled to? Here’s a handy checklist for U.S. businesses that are structured as sole proprietorships, partnerships, or limited liability companies (LLCs).

Home Office

The portion of your home that you use for an office can qualify you for a wide range of deductions, as long as that area is used exclusively and regularly for business purposes.

First, figure out the square footage of that area (the maximum allowed is 300 square feet). Then figure out what percentage that is of your home’s total square footage. That’s the percent you can deduct for home-related expenses including:
• Repairs and maintenance
• Utilities
• Security

As an alternative to itemizing these deductions, you may choose to take a standardized deduction of $5 per square foot of the area used for business.

Property Insurance

Deduct insurance premiums on the company’s real estate holdings and equipment. If you work from a home office, you are eligible to take this deduction for your homeowner’s or renter’s insurance.

Medical Care and Insurance

As a self-employed business owner, you can deduct the premiums of your personal health, dental and long-term care insurance, as well as those of your spouse and/or dependents. But if your spouse’s employer offers a plan that covers you, you won’t be able to claim a deduction on any other plan.

Out-of-pocket medical expenses, such as doctor and hospital fees, in-home care, and medications, can be deducted on your 2018 return if they exceed 7.5% of your adjusted gross income. In 2019, that minimum goes up to 10%.

Child and Dependent Care

This includes the costs of hiring care for your children (age 12 or younger) and individuals (of any age) who are physically or mentally incapable of self-care. If you were working or looking for work while the care took place, these expenses are 100% deductible.

Real Estate Taxes

Any real estate taxes you pay to your state, city, and even another country are deductible.

Interest

Deduct the amount of interest you paid on:
• Business loans
• Business credit cards
• Mortgage loans to buy or improve your home or business property
• Home equity loans
• Money borrowed for investment (if the investment has more interest than income, you can carry forward the overage to next year)

You can also deduct bank fees and charges on business accounts.

Depreciation on Equipment

This deduction helps offset the cost of expensive equipment such as computers and vehicles. You can take the entire amount in the year you bought the item or spread it out over the years that you own it. Which is the better route depends on the expected life of the equipment and other factors; your tax advisor can help you make the right decision.

Energy Efficiency Improvements

You may be able to deduct 30% of the cost of alternative energy equipment in your place of business (including your home if you work from a home office), such as:
• Solar electric equipment
• Solar water heater
• Wind turbines

Salaries and Benefits

What you pay employees (other than the company’s owner, partner, or LLC member) is deductible. Wages, benefits, and even paid time off are included.

Telephone and ISP Charges

As long as you’re using these services for business, they’re deductible. If your phone and internet are used for both business and personal communications, you’ll have to document the percentage of business use.

Car Expenses

For any vehicle used solely for business purposes, you can deduct 100% of the costs of operation. If you use your car for both personal and business trips, you must divide up the costs.

You can either itemize the actual costs of fuel, depreciation, registration fees, parking fees, etc. or take a standard mileage deduction (which is easier and maybe to your benefit if your actual costs are less than the standard rate). The mileage rate changes each year; for 2018 it’s $0.545 per mile.

Meals

Deduct 50% of business-related food and beverage costs. Be sure to keep receipts showing the amount of the expense, place, and date of the meal and business relationship of the person(s) whose meal you paid for.

Travel Expenses

A business trip that is ordinary, necessary, and far enough away from the tax home that you would need to sleep or rest before completing it qualifies for tax deductions. Allowable expenses include:
• Travel to and from the destination
• Shipping of baggage and work materials to the destination
• Taxis, car rental, parking and toll fees
• Lodging and meals
• Tips
• Business calls
• Dry cleaning

Education

Deduct 100% of the costs associated with increasing your knowledge and expertise that adds value to your business. These include:
• Classes, seminars, webinars and workshops
• Books and subscriptions to trade publications
• Transportation expenses to and from the education venue

Professional and Legal Fees

This deduction covers any consultants you hire in connection with running your business, including attorneys, accountants, tax preparers and advertising agencies.

Advertising and Promotion

These costs are 100% deductible. They include:
• Newspaper, magazine, radio, TV, internet and billboard ads
• Printing flyers, sales letters, business cards, and forms
• Postage costs for direct mail promotions
• Trade show entry fees or booth rental

Charitable Contributions

As long as the contribution is made to a qualified organization, you can deduct this on your personal tax return.

For more information about tax planning and filing for small businesses, please consult your Xendoo team.

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

Important Tax Dates for Q3 & Q4

September 10 — Employees who work for tips

If you received $20 or more in tips during August, report them to your employer

September 15 — Individuals

Make a payment of your 2020 estimated tax if you are not paying your income tax for the year through withholding (or will not pay in enough tax that way). Use Form 1040-ES. This is the third installment For more information

September 15 — S Corporations

File a 2019 calendar year income tax return (Form 1120S) and pay any tax due. This due date applies only if you timely requested an automatic extension

September 15 — Partnerships

File a 2019 calendar year return (Form 1065). This due date applies only if you were given an additional extension

September 15 — Corporations

Deposit the third installment of estimated income tax for 2020

October 11 — Employees who work for tips

If you received $20 or more in tips during September, report them to your employer

October 12 — Everyone

Federal Holiday (Columbus Day)

October 15 — Individuals

If you have an automatic extension to file your income tax return for 2019, file Form 1040 and pay any tax, interest, and penalties due

 

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

(Updated) 2020 Tax Deadlines for Small Businesses

Keep this chart handy or copy the relevant parts of it into your calendar so you won’t miss a due date throughout the year.

W-2 Filing

(Wage and Tax Statement for Full- and Part-Time Employees)

January 31

Form 1096 Filing

(Information Return by Employers to the IRS on Form 1099s Issued to Independent Contractors)

February 29

Form 1099-MISC Filing

(Statement of Payments Made to Independent Contractors)

January 31 Copy A paper or electronic submission to the IRS if box 7 is filled in

January 31 Copy B to the contractor

February 28 Copy A paper submission to the IRS if box 7 is empty

March 31 Copy A electronic submission to the IRS if box 7 is empty

S Corporation Tax Filing

(for a calendar tax year)

March 16 Submit Form 1120S Income Tax Return

March 16 File for an extension

Partnership Tax Filing

(for a calendar tax year)

March 16 Submit Form 1065 Income Tax Return

March 16 File for an extension

C Corporation Tax Filing

(for a calendar tax year)

July 15 Submit Form 1120 Income Tax Return

July 15 File Form 7004 Application for an Automatic Extension of Time

LLC Filing as Corporation Tax Filing

(for a calendar tax year)

July 15 Submit Form 1120 Income Tax Return

July 15 File Form 7004 Application for an Automatic Extension of Time

Individual Tax Filing

(Sole Proprietor, Independent Contractor)

July 15 Submit Form 1040, 1040A or 1040EZ Income Tax Return

July 15 File for an extension

Nonprofit Tax Filing

July 15 Submit Form 990

July 15 File for an extension

Estimated Quarterly Tax Payments

Q4 2019 (January 15) Send final 2019 payment with Form 1040-ES Payment Voucher 4

Q1 2020 Extended Deadline (July 15) for first 2020 payment with Form 1040-ES Payment Voucher 1

Q2 2020 Extended Deadline (July 15) for  second 2020 payment with Form 1040-ES Payment Voucher 2

Q3 2020 Regular Deadline (September 15) third 2020 payment with Form 1040-ES Payment Voucher 3

 

Some types of businesses may have different or additional deadlines and requirements. Consult with your accountant or tax advisor early in the year to make sure you meet your obligations.

 

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

Income Tax Q&A: IRS Form 8879

What is form 8879?

Form 8879 is an electronic signature document that is used to authorize e-filing. It is generated by the software using both the taxpayer’s self-selected PIN and the Electronic Return Originator’s (ERO’s) Practitioner PIN. Form 8879 does not need to be mailed to the IRS but instead is retained by the ERO, in this case, Xendoo.

Who must sign an 8879?

When you use a third-party tax preparer, you are required to review and sign the 8879.

What is important to note when signing the 8879?

At the top of the 8879 is a lot of filled information used to identify you and summarize your tax return information. It’s important to note when you sign your 8879, you are certifying that all the names, SSNs, and amounts are correct.

Where can I find the 8879?

For Xendoo customers, we will provide you with an 8879.  Otherwise, you can find it on the IRS website here. Look at this link

It’s important to read the first line of Part II. Here it is for your convenience:

Under penalties of perjury, I declare that I have examined a copy of my electronic individual income tax return and accompanying schedules and statements for the tax year ending December 31, 2019, and to the best of my knowledge and belief, they are true, correct, and complete.

This is where the tax party is certifying, under penalties of perjury, that your entire tax return and accompanying schedules and statements are “true, correct, and complete.”

What is the role of the CPA?

Our responsibility as tax preparers is to provide a tax return that is accurate, given that the information you provide us is accurate. We may be tax experts, but we can’t read your mind. We don’t know if you’re holding any information back, even accidentally. This is one of the reasons we ask a lot of questions such as: Have you bought or sold a house in the last year?  Is this all your income?

Undeclared income is something that gets a lot of people in trouble, and we can only do so much to assess whether you are declaring all of your income. Errors of omission often happen by accident of course.

What are the Taxpayer Responsibilities?

On page two you will find the following instructions and fine print.

Most of these instructions are procedural, but please note the phrasing of Item 1:

Taxpayers have the following responsibilities.

1. Verify the accuracy of the prepared income tax return, including direct deposit information.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

Updated 3/20: Tax Filing Deadline has been extended to July 15th

The IRS is extending the federal income tax filing deadline to July 15 as part of a growing effort to stem the financial pain from the coronavirus pandemic, Treasury Secretary Steven Mnuchin announced Friday.

There’s one bit of relief for businesses suffering from the effects of the COVID-19 pandemic: You now have until July 15, 2020, to pay your federal income tax. Read the full press release here.

If you owe taxes, the Treasury Department has extended the payment deadline for individuals and businesses for 90 days. The extension is automatic; you don’t have to file any extra forms to get it.

However, you still must file your tax return by April 15.

If you are expecting to receive a refund, the sooner you file, the sooner you’ll get that money. For tax return forms filed electronically, it usually takes about three weeks to receive your refund.

Individual Returns

The July 15 payment extension applies to all individual returns, including self-employed individuals, and all entities other than C-Corporations, such as trusts or estates. 

It also includes estimated tax payments for the 2020 tax year that were due on April 15.

C-Corporation Returns

The tax payment deadline is extended to July 15 for up to $10 million of the 2019 tax due.

Need More Time to File?

As in every other year, you can get a 6-month extension of your filing date from the IRS. You don’t need to give a reason, it is automatically granted after you apply. 

File the application form through your tax professional, tax software, or irs.gov Free File.

Be aware, though, that even with the filing extension, you would still owe taxes and penalties on any taxes that are unpaid as of July 16. 

State Income Tax

The Treasury Department’s tax payment extension only applies to federal taxes, not your state’s. Check with your state agency to see what (if anything) they are changing to meet the COVID-19 crisis. Here’s a list of links to state revenue departments.

As small business specialists, Xendoo is well aware of the impacts COVID-19 has had — and will have — on the finances of owners and employees alike. We stand ready to help you through this difficult time. Experience the Xendoo difference with a one-month free trial.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

How to Turn Your Vacation into a Tax Write-off

Wait a minute, you say — the IRS frowns on claiming vacation costs as business deductions. But you can sneak some playtime into a work trip, and keep it all perfectly legit. Here’s how to follow the rules while saving a bundle.

What’s Considered a Business Trip

These are the criteria you must meet to satisfy the IRS’s definition and qualify for deductions.

1. The primary purpose of the trip must be business. You must spend the majority of your days away in work-related activities, such as meeting with customers. The days you spend traveling to and from the destination count as business days, so meeting this requirement is easier than it seems.

For example, you could fly to Honolulu on Monday, attend a conference Tuesday through Thursday, hit the beach on Friday and Saturday, and fly home Sunday. That would be considered 5 workdays and 2 vacation days.

1. The trip must be planned in advance. Write out a detailed itinerary and what you’ll be doing each day. Get it time-stamped well in advance of your departure; for example, you could email it to a colleague.

2. The trip must be somewhere other than your “tax home.” In other words, you must leave the location where your business is based on longer than a normal workday.

3. The trip must be for “ordinary and necessary” activities. For example, it may be necessary to rent a car during your stay, but it’s not necessary to rent a luxury class one. There’s a lot of room for interpretation here, but it’s better not to try and push it, especially since the IRS penalties can be substantial.

Different Rules for International Trips

Traveling outside the USA offers even more opportunities for vacation deductions.

1. You only need to spend 25% of your days doing business.

2. If you spend less than 25% of your time working, you can still take deductions, but only as a percentage of the total cost. For example, if you spend 1 day out of a 5-day trip to Italy on business, that’s 20% of your time away and you can deduct 20% of your airfare.

What You Can Deduct

These are the expenses you can write off when you’ve met the criteria for a business trip.

1. Travel: 100% of air, train, bus, or other transportation fares as well as rental cars.

2. Lodging: 100% of the days you spend working. If you work your itinerary right, you may also be able to write off the vacation days, by sandwiching the vacation days in between workdays.

For example, you might fly to Orlando on Thursday, have a workday on Friday, see Disney World on Saturday and Sunday, have another workday on Monday, and fly home on Tuesday. Since it wouldn’t be cost-effective to fly back and forth for each workday, the weekend you stay over would be considered workdays.

1. Food and entertainment: 50% of all meals and entertainment that specifically facilitate business, or that are incurred while traveling to and from your destination. Keep receipts and good records in case the IRS asks.

When Family or Friends Come Along

You can’t directly deduct any of their expenses. However, in many cases, they can ride on your coattails for less than full cost.

1. Car Rental: As long as it’s the same “ordinary and necessary” car you would have rented if you were alone, nothing says there can’t be other people in the car.

2. Lodging: You can deduct the portion of hotel costs that you would have paid for a single room. For example, if you would have spent on a $100 single room when traveling alone but you’re in a $150 double with your significant other, you can still write off $100.

When Your Trip Doesn’t Quite Qualify as Business

You may be spending the majority of your days on vacation, and just happen to meet with a client while you’re there. Or maybe you didn’t get the necessary documentation to support your claim that it was a business trip.

You can still write off 50% of meals and entertainment you spent for business purposes. However, you can’t deduct any travel or lodging costs.

Need more help with deducting your vacation expenses? We’re here to answer any questions you have, and file your tax return correctly so that you get every write-off you’re entitled to.

All work and no play makes you a dull business owner. So go ahead and take some time for R & R. You deserve it!

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

Pass-Through Deductions: What It Is and Who Qualifies

One of the best small business-friendly aspects of the Tax Cuts and Jobs Act (TCJA) is the 20% deduction you can take on your income tax if your business is a pass-through entity. Here’s what you need to know about it.

What Is the Deduction

The TCJA was passed in 2017 and first applied to 2018 tax returns. Provision 199A of that law states that you can deduct 20% of your “qualified business income” which was earned from a “qualified trade or business.”

What Is a Pass-Through Entity

Any business structure that allows you to receive income as an “owner’s draw” rather than as a regular employee is a pass-through business. The money is “passed through” from the company account to your personal account. You only pay income tax on it with your personal return; you don’t have to file a separate return for the business.

Pass-through entities include:
• Sole proprietorship
• Partnership
• LLC (limited liability corporation)
• S-Corporation

However, there are some restrictions.

Taxable Income Restriction

• Less than $157,500 (single, married filing separately, head of household) or $315,000 (married filing jointly): you qualify for the full 20% deduction.
• $157,500 – $207,500 or $315,000 – $415,000, respectively: your deduction may be less.
• More than $207,500 or $415,000, respectively: you are not eligible for the deduction.

Specified Service or Trade Restrictions

What your business does may disqualify it from the deduction. Here’s the list of excluded fields, as issued by the Treasury Department in August 2018:

• Health
• Law
• Accounting
• Actuarial science
• Performing arts
• Consulting
• Athletics
• Financial services
• Brokerage services
• Any business where the principal asset is the reputation or skill of one or more of the employees or owners
• Any business that consists of investing and investment management, trading or dealing in securities, partnership interests or commodities

But don’t give up if you see your business in one of these categories, because there are numerous exceptions. For example, in the Health category, healthcare providers who provide services directly to patients — such as doctors and dentists — are not eligible. On the other hand, health clubs, spas, medical research companies, and those who sell pharmaceuticals or medical devices may qualify for the deduction.

In the case of businesses who both provide services and sell products, eligibility is determined by sales:
• Less than $25 million in gross receipts and less than 10% of your business comes from disqualified services; or
• More than $25 million in gross receipts and less than 5% of your business comes from disqualified services

Employee and Property Restrictions

There are two further conditions that could affect how much of a deduction you can take. They are:
• Business that pay W-2 wages
• Business that owns “qualified property” such as real estate or other tangible assets that can be depreciated

If your business fits either of these descriptions, your deduction will be the lesser of:
• 20% of qualified business income (or the “tentative deduction”); or
• The greater of:
o W-2 wages paid x 50%; or
o W-2 wages paid x 25% + the unadjusted basis (cost) of your qualified property x 2.5%

Still confused about the pass-through deduction? Your Xendoo small business expert can clear things up, answer your questions, and help you get every tax break you deserve.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

Small Businesses, Save on Taxes with These Year-End Actions

Want to pay less tax on your 2019 income? Now is the time to make your moves. In order to be counted, they must be completed by December 31, 2019.

1. Capital Expenditures

Invest in new equipment or make other improvements to your business. Any purchase made in 2019 can be claimed as a deduction on your next tax return.

2. Capital Losses

If you sell stock or another asset at a loss (meaning you sold it at a lower price than you paid for it), you can deduct the amount of the loss up to $3,000. That loss can be used to offset capital gains made on other stock, and reduce the capital gains tax. And if you lost more than $3,000, you can carry the unused balance over to subsequent tax year(s).

Take note, you can’t buy the same or similar asset right back after using it to claim a loss deduction. That’s called a “wash sale” and if you do it within 30 days, the IRS will disallow your deduction.

3. Expense Acceleration

Move some expected early 2020 expenses into 2019. For example, you could purchase 3 months of supplies rather than your usual 1 month. Or pay your January rent early. Just pay for them before December 31, and they’ll be claimable on your 2019 return (which you’ll file in 2020).

If you pay by credit card, as long as the charge appears on your December statement, it’s deductible — even though you don’t pay the bill until January.

4. Income Deferral

In most cases, your tax return reports income only for the year in which you actually received payment for your products or services. Send out December invoices late in the month, so you won’t collect the money for them until January. You won’t have to pay tax on income received from 2020 until 2021.

5. Asset Depreciation

You have two options for claiming depreciation on new and used business assets: taking the full amount in one year or depreciating them over time. If you need the biggest write-off right now, take the full depreciation. However, that may not be best for your business in the long run, so discuss it with your tax advisor.

6. IRA Contribution

This tip relates to your personal income (which may or may not be separate from the business income). The money you pay into a traditional individual retirement account (IRA) is tax-deductible in the year you make the contribution. (Actually, you have until April 15, 2020, to make your 2019 contribution.) Any interest or other earnings the IRA accumulates over its life are not taxed until you retire and begin withdrawing the money — which maximizes their earning power.

These rules don’t apply to a Roth IRA. Contributions are not deductible in the year they’re made but taxed as ordinary income. The bonus of a Roth IRA is that withdrawals from it after retirement are tax-free — ideal if you want more income in your golden years.

Some of these tricks only put off your tax liability to 2021 (on your 2020 return), they don’t actually remove it. Whether that’s a good idea depends on your cash flow needs right now, what you expect them to be next year, possible changes in tax rates and laws, and other factors. Xendoo tax consultants can help you understand your options and plan the maximum tax benefits for your business.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

The Choice Is Yours: 3 Ways for LLCs to File Federal Income Tax

Setting up or transitioning your small business as a Limited Liability Company (LLC) is a great way to protect your personal assets from business-related debts and lawsuits. But how will it affect your income tax?

The IRS doesn’t recognize LLC as a business classification — unlike sole proprietorships, partnerships, and corporations. That means you can choose to identify yourself as one of those classifications when you file your income tax.

Note: If you don’t declare your choice, the IRS will default you to either a sole proprietor (one owner) or a partnership (more than one owner).

Here’s how to do it.

Sole Proprietorship

This is considered a “pass-through” business. Any business income or losses are passed through to your personal ownership and are reported on your personal tax return. You have to do it this way whether the profits from the business go into your personal bank account or stay in the company’s account for paying business expenses.
Since the LLC registration is done at the state level, the business itself doesn’t pay any federal income tax. However, some states require an annual franchise tax for LLCs.

  • Report LLC income on Schedule C of your individual tax return (usually Form 1040).

Use this election if your LLC has multiple owners but you don’t want to pay taxes as a corporation.

As with a sole proprietorship, the IRS considers the multi-member LLC a pass-through entity — business profits and losses are reported on each member’s personal tax return.

The profits or losses are divided up among the members according to the percentages stated in your operating agreement. For example, if you have one co-owner, each of you could be responsible for 50% of the profits or losses.

  • The partnership must file Form 1065, which is an informational statement of the LLC’s income, gains, losses, deductions, credits, etc.
  • In addition, the LLC must provide each partner with a Schedule K-1 which reports that member’s share of the profit or loss and will be filed with their personal tax return.

Corporation

LLCs may choose to be taxed as a corporation that is responsible for filing its own business tax return. With this choice, you will avoid being personally liable for fines and penalties if you are late filing the company’s tax return.

Filing as a corporation is also smart if you plan to keep most of the profits in the business instead of transferring them to your personal use.

You (and your partners, if any) can elect to be taxed as a C-corporation or an S-corporation. A C-corporation is a stand-alone entity that pays corporate taxes, meaning that you could be taxed on both the corporate and personal levels. An S-corporation is a pass-through entity and does not pay corporate income tax. All revenues are either distributed as wages or passed through to the owner(s) as dividends.

The tax advantage of an S-corporation over a sole proprietorship or partnership is that you are considered an employee of the company. Therefore, you will only pay FICA (Social Security and Medicare) tax on the wage the company pays you. Any other profits you take out of the business are taxed as dividends, not subject to FICA tax.

  • To inform the IRS that you are electing for your LLC to be treated as a corporation for tax purposes, file Form 8832.
  • To be treated as an S-corporation, first, establish your eligibility by filing Form 8832, then file Form 2553.
  • File your tax return on Form 1120 (for C-corporations) or Form 1120-S (for S-corporations).

Meeting the requirements to file as a C-corporation can be tricky — and even more so as an S-corporation. We recommend that you consult your accountant to make sure there are no mistakes that could cause you to lose your money-saving tax status.

Your Xendoo team of accounting experts can help you find the right solutions for your small business, and take the hassles of tax prep and filing off your shoulders. We’ll do what we do best — and let you get back to doing what you do best to make your business a success.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.