This guide is for small businesses filing their tax returns on Schedule C with their personal returns (Form 1040). It includes sole proprietors and single-member LLC owners. If your business is a corporation or S corporation, check out the Complete Guide for Corporations and S Corporations, If it is a multiple-owner LLC or a partnership, here is a Guide for Business Taxes for Partnerships.
Due Dates
Because small businesses file their business tax returns with their personal returns, the due date is the same as the personal income tax return due date: April 15. If the due date falls on a holiday or weekend, the next business day is the due date for that year.
Schedule C Income Tax Forms
These are the forms you’ll need for sole proprietors and single-member LLCs, including those for calculating self-employment tax:
Schedule C, Profit or Loss from Business 2020 Instructions for Schedule C Schedule SE, Self-Employment Tax 2020 Instructions for Schedule SE
Tax Details Needed to Complete Schedule C
The information you may need to complete Schedule C:
Information to calculate cost of goods sold, if you have an inventory of products or parts for sale Information to prove all business tax deductions, including information on the costs of business travel, driving expenses, and business meals. Entertainment expenses are no longer deductible Information on costs for buying business assets like vehicles and equipment, to calculate depreciation deductions Information on the business use of your home, for a home business space deduction
Self-Employment Taxes
Small business owners must pay self-employment taxes (Social Security/Medicare taxes) on the net income (profit) from their businesses. If you don’t have any income from the business during the year, or if your income is $400 or less for the year, you don’t have to pay the self-employment tax. A simplified explanation of how self-employment tax is calculated:
Enter your business net incomeMultiply this income by 92.35% (0.9235)Multiply this number by 15.3% (the self-employment tax rate) to get your self-employment tax liability amount.
This amount is used to determine your eligibility for Social Security/Medicare benefits for the year. If you don’t have any income, you can’t get credit for these benefits that year. You can deduct one-half of the self-employment tax to reduce your adjusted gross income for the year. A tax software program or tax preparer can calculate this tax for you, or you can run the calculation yourself using Schedule SE.
How To Add Schedule C to Your Personal Tax Return
Add your business net income on Schedule C (Line 31) to your personal income tax return on Schedule 1, line 3 (Business Income/Loss). This schedule is used to total additional income and adjustments and bring them into your Form 1040 or Form 1040-SR. Enter your total self-employment tax from Schedule SE on Schedule 2 of Form 1040 (Additional Taxes). The deduction for one-half of the self-employment tax is entered on Schedule 1. Add any tax credits or other business adjustments you are qualified to receive to Schedule 1, including the deduction for half of the self-employment tax.
How To File Your Tax Return, Including Schedule C and Schedule SE
You can file your tax return by mail, or you can e-file the return. The last page of the instructions for Form 1040 lists the addresses to use for mailing your tax return to the IRS. The e-filing fee will be included in your cost if you’re using tax preparation software. This cost is also included if you use a professional tax preparer.
Filing an Application for an Extension on Your Taxes
You may apply for an automatic extension of time to file your taxes, including your small business taxes. The extension is for six months for non-corporate tax returns, so the due date for the return is October 15 (unless October 15 is a weekend or holiday, in which case that date is the next business day).
Filing an Amended Tax Return
You must file an amended return if you make a mistake on your tax return, whether the error is due to your business taxes or personal taxes. The form to amend your tax return depends on your business type. To amend your personal return, including Schedule C, use Form 1040X Amended Return.
Paying Estimated Taxes
You must pay estimated taxes if you don’t otherwise pay enough taxes during the year. Many small business owners must pay estimated taxes, because they don’t earn a salary, so no taxes are withheld from their income from self-employment. Estimated taxes are due quarterly: April 15—or June 15, 2021, if you live in Texas, Louisiana, or Oklahoma—June 15, and September 15 of the current year, and January 15 of the following year. The change in the federal tax filing deadline to May 17, 2021 does not affect estimated tax payments. They’re still due on April 15 for everyone other than residents of Texas, Louisiana, or Oklahoma.
Do I Need a Tax Preparer?
A very simple small business with no cost of goods sold or assets to be depreciated might be able to use a tax software program. but most small businesses need a tax preparer. Even a simple Schedule C might be more difficult than you think. Before you enlist the help of a CPA, enrolled agent, or another qualified tax preparer, use the information in this guide to help you get ready for business taxes.
