How to File a Small Business Tax Return Free

Before you file your return, gather documents that will help you fill out the form. Preparing to file helps you avoid Internal Revenue Service (IRS) audit triggers and mistakes, claim write-offs, and get a higher refund. Be sure you have the following information on hand before filing your return.

• Taxpayer Identification Number: Every small business owner needs a Taxpayer Identification Number (TIN) to file a tax return. There are several kinds of TINs, including Social Security numbers and Federal Employer Identification Numbers (FEINs). If you are a sole proprietor with no employees, you can use your Social Security number. If you have employees, use your EIN. If you do not have a TIN, apply for one through the IRS website.

  Did you lose your Tax Identification Number? First, look at old documents that might contain the number, such as a past tax return or bank statement. If you still can’t find your TIN, call the IRS’s Business & Specialty Tax Line at (800) 829-4933.

• Financial Records: Report your business’s income and expenses on the tax return. To file, you need complete financial records, including both financial statements and supporting documents (e.g., receipts). You can use online accounting software to keep your records organized.

  Knowing how to file federal income taxes for small businesses involves a lot of information. Your financial records also help you claim deductions and prove the accuracy of your return. The following are examples of financial records that will help you file.

• Profit and Loss Statement: The profit and loss statement shows your business’s revenue and expenses throughout the year. Use this statement to report income on the tax return.

  The profit and loss statement for your small business shows all sources of income, and it lists all your expenses. You can use the expenses reported on your profit and loss statement to claim write-offs. Expenses could include:

  • Utilities

  • Insurance

  • Supplies

  • Professional fees

  • Interest paid

  • Travel and mileage expenses

  • Petty cash expenses

  • Balance sheet (Your business balance sheet shows assets, liabilities, and equity. To file your business tax return, you need your balance sheet from the beginning and end of the year. Use the balance sheet to report your annual income from business operations.)

• Supporting Financial Documents: As you prepare the return, look for documents that support information in your books. Supporting documents will offer proof in case of an audit. The more financial documents you can provide that show the same information, the better. For example, find receipts, invoices, and bills that show expenses paid and income received.

• Business Use of Your Home and Vehicle: If you use part of your home for business, you can claim a deduction. Use Form 8829, Expenses for Business Use of Your Home, to calculate the percentage of square footage in your home that you use for business. You can also claim a deduction for business use of your vehicle on your tax return. You might be able to write off mileage (excluding your commute between work and home), insurance, and maintenance. For both the business use of your home and vehicle small business tax write-offs, you need to have records showing accurate expenses and business use.

The form you file for taxes depends on your business’s structure. Each type of business structure uses a different form. Find your business structure below to see which form you will use for filing and paying your business taxes.

• Sole Proprietorships: Use Schedule C to file your business tax return if you are a sole proprietor. Schedule C helps you calculate profit or loss from business operations. Attach Schedule C to your individual tax return, Form 1040. Some small businesses can use Schedule C-EZ to file their taxes. Schedule C-EZ is a simplified version of Schedule C. To use Schedule C-EZ, your business must:

  • Have expenses no greater than $5,000

  • Have no employees

  • Have no inventory

  • Not use depreciation or deduct the cost of the owner’s home

  • Not be a partnership (Partnerships are pass-through tax entities. That means that taxes pass through the business. Instead of the partnership paying business taxes, the partners are responsible for paying taxes. Both the partnership and partners must report to the IRS on separate forms. The partnership uses Form 1065, showing the total profit and loss of the business. The partnership should send Form 1065 to the IRS. Each partner is given a Schedule K-1 by the partnership. The form indicates each partner’s share of profit and loss within the business. Partners use Schedule K-1 to fill out parts of their individual tax return, Form 1040.)

• Corporation: If your business is incorporated, use Form 1120 to file your business tax return. Form 1120 reports your business’s income, losses, and write-offs. You also use the form to figure your income tax liability.

• Limited Liability Company (LLC): When you set up your LLC, you can choose whether you want to be taxed as a corporation. This election and the number of members in your LLC affect the form you use for filing taxes. Single-member LLCs follow the directions for a sole proprietorship. Use Schedule C and attach it to your individual tax return. Multiple-member LLCs follow the directions for a partnership. Use Form 1065 to file your tax return. Each member should receive Schedule K-1 from the LLC. If you elected to be taxed as a corporation, follow the directions for a corporation. Use Form 1120 to file your tax return.

You can file your small business tax return by mail or e-filing. If you mail the form, the instructions include the correct address you should send it to. E-filing through the IRS’s e-file system is faster and easier than sending a paper form.

Accounting for small business owners may still seem a bit intimidating. You may want to hire an accountant or tax preparer to help you file your business tax return. An accountant can help you accurately file, deduct write-offs, and make your journal entry for tax refund money.

Even if you’re filing your first business return, doing the taxes for your small contracting business doesn’t need to be difficult if you have the right information up front!