Thinking About Doing Your Own Business IRS Taxes? Read This First!

Small business owners are already keeping up with day-to-day business activities, and taxes are an additional and essential responsibility. Doing your business taxes on your own adds another layer of difficulty to your work, and it can be complicated for self-employed individuals, but it's not impossible.

If you own a sole proprietorship or are a 1099 contractor, self-employed individual or freelancer, you can do your business taxes on your own. Alternatively, you can hire a CPA to do your taxes for you, but that can get pretty expensive.

To do your taxes yourself, you need to follow a few steps that will help you organize your documents including IRS tax forms, bank statements and receipts.

The time and cost of doing your business taxes

You might already be keeping records of things like sales, finances, marketing, production and service.

To get started, you'll need to collect all the information you'll need. That means receipts for your business expenses, profit and loss calculations, and records of salaries or payments to independent contractors.

You might have decided to do your own taxes because of the high cost of filing and paying taxes using an independent CPA. You can deduct the cost of filing a tax return from your taxable income but only part of it.

The cost of using a CPA is proportional to the time spent on your tax filing. According to research, the hourly CPA rate can be between $150 and $450. So if the CPA you hired is spending around 10 hours to file your taxes, your tax bill can easily hover between $1,000 and $5,000. You can aim to lower this bill by finding a cheaper CPA and risk accuracy with your tax return or quality of service, or you can use an automatic income and expenses tracker like FlyFin.

FlyFin is an A.I. tax tool that finds all your business expenses and potential tax deductions in minutes by connecting to your bank statements. FlyFin is designed to cater to freelancers, self-employed individuals and small business owners. In addition, it offers an annual subscription at a fraction of what a CPA typically charges.

What you'll need to file taxes on your own

Record of transactions

You'll need all the records of the past year's transactions. This will give a good idea of your tax implications before filling out IRS tax forms like Form 1120.

What's Form 1120?

Form 1120 reports all the income, losses, gains, credits and deductions to determine a corporation's tax liabilities. In other words, companies that are LLCs, S-corporations and C-corporations use this form, or one of its variations, to file their taxes. The only organization or corporation exempt from filing this form is an NPO with a 501 status.

Keep all the relevant forms handy

The next step to filing a tax return as a small business is finding all the relevant forms needed. As mentioned, one of the forms is 1120. But if you own a sole proprietorship or are self-employed, you can use Schedule C to report all your business gains and losses.

For an S-corporation, you'll file the 1120-S, whereas Form 1120 can be used to file for an LLC and C-corporation. If you are part of a partnership, like a multi-member LLC, you'll have to use Form 1065.

Is this too much to absorb? You can use FlyFin to get up to speed with all the IRS tax forms and even get in touch with a CPA for any tax questions.

Fill out the forms

Once you have all the forms and the information in one place, you only need to fill in all the forms. Fill out Schedule C, 1120 or 1120S based on your legal tax status.

It means knowing how the IRS taxes your company based on its business structure, such as a sole proprietorship, S-corporation, C-corporation or partnership.

If you own a sole proprietorship, you must fill out Schedule C to find your net profit or loss. Once you do this, you need to attach Schedule C to your income tax return form – the 1040.

Filling out the 1120 form to find your profit or loss is similar to filling out the Schedule C; the difference is that you can't attach it to your income tax. As a small business, your taxes are separate from your income unless you have an LLC. An LLC lets you avoid double taxation, as you only pay personal income tax, and the company is not taxed separately.

Know the deadlines

You'll have to keep track of the deadlines that are crucial for you to have a proper tax filing plan and vital for avoiding tax penalties.

Tax penalties can be steep when you are a small business or corporation. Delaying your taxes by even a month or two can push penalties into thousands of dollars. The deadline for a C-corporation is April 15 of every year. The deadline for S-corporations and partnerships is March 15 of every year. Both move to the next working day if they fall on a holiday or a weekend.

Should I file my business taxes on my own?

The answer to this depends on how busy you are, what’s the scale of your business, the profits and losses and so on. If you have a huge business operation, then it’s probably the best idea to leave your taxes to a tax professional because the hassle of filing will be too much to handle for a single person.

You can have a dedicated CPA hired for this work, or you can use FlyFin to help you get your taxes done. At the end of the day, it all depends on the cost and time of filing your taxes.