Filing your taxes can get pretty complicated. From gathering the necessary forms to determining which deductions you can make, doing taxes as a small business owner can be stressful. Fortunately, though, tax software can make filing your taxes as a business owner much easier. With the right software, you can quickly and efficiently file your state and federal tax returns.
But, if you haven’t used tax software before, it’s important to be prepared to ensure this process is as easy and stress-free as possible.
Let’s take a look at what tax software is and how you can use it to file your tax return easily.
What is Tax Software?
Tax software is a computer program designed to help businesses and individuals prepare and file their income tax returns. It’s also referred to as tax preparation software and tax compliance software.
You’ve probably heard of TurboTax or H&R Block. These are two of the many tax software services available in the market.
Computer programs like these streamline the tax filing process by walking you through the forms you need and the deductions you may be eligible for. After entering your information, your tax software will automatically calculate your tax obligations.
How to Use Tax Software
Every tax software service is different. They all have different interfaces, instructions, interfaces, options, etc. But they all have a thing in common.
All of them ultimately do the same thing.
The software of your choice will ask you to enter your relevant financial information to help calculate your tax obligations and potential returns. As such, they all need the same information to help you accurately complete your tax return.
When you first use your tax software, you’ll have to input all of your business’ information, like name, address, phone number, and other important details.
The information and documents you need depend on the type of business you operate. Below, you’ll find the information you need to file your taxes as a corporation, sole proprietorship, or LLC.
Filing as a Corporation
Filing taxes as a corporation is much different than filing as an individual or another type of business. Corporations must pay income taxes based on their benefits, individual income taxes, and tax on dividends.
To report your corporation taxes to the IRS, you’ll need to fill out Form 1120.
Section 1 of this form will require you to basic information about your corporation, such as your business’ name, address, and date of incorporation.
Section 2 will ask you to provide information relating to gross income, dividends, cost of sales, interest, royalties, and similar information.
For Section 3, you will have to enter your tax-deductible expenses. This could include business-related expenses such as rent, utilities, employee benefits, and more. You should be sure to gather receipts for these expenses in case you are audited by the IRS.
Lastly, in Section 4, you will need to list the portion of your income that is subject to taxes, reimbursement credits, and other amounts you are owed.
Filing as a Sole Proprietorship
Filing as a sole proprietorship requires you to report your business’ income and losses as part of your personal tax return. If your business is unincorporated and you are the sole owner, this is what you will be filing as.
There are a variety of documents you will need to use tax software as a sole proprietorship, including:
- Your SSN or ITIN
- Receipts for business-related expenses
- Pay stubs
- Tax records
- Student loan information
- And more
In addition to this information, you will need to fill out a few IRS forms to complete your tax return.
Schedule C (Form 1040) is where your report your business income or losses from the business you operated as a sole proprietor.
Schedule SE is used to calculate the total amount that you must contribute to Social Security and Medicare.
Form 1099-MISC is only required if you hired an independent contractor and paid more than $600 for their services during the tax year. You must fill out this form for each independent contractor that you hire.
Lastly, if you sell items online, you must fill out Form 1099-K, which reflects your income from a third-party, payments made with PayPal, and transactions made with credit and debit cards.
Filing as an LLC
Filing taxes as a Limited Liability Company (LLC) is similar to filing as a sole proprietor in many ways. However, the forms you need to submit depends on the type of LLC you operate (e.g. an LLC with a sole owner versus an LLC with multiple owners).
If you are the sole owner of your LLC, you will need to use Schedule C to report your income or losses.
You will also need to fill out Form 8832 to tell the IRS which tax category you are selecting for your LLC.
Be sure to also collect your receipts for business-related expenses so that you can make deductions without incident.
Using Your Tax Software
Once you have identified which type of entity you are filing as and you have gathered the necessary documents, you can use your tax software of choice to file your taxes.
Most tax compliance software has the appropriate forms preloaded so that you don’t have to download them from the IRS and fill them manually. All your information is added automatically and you just have to fill in the blanks.
Using tax software is as easy as following the instructions to enter your tax information when prompted.
Once you have finished filling out your return, the tax software will typically deliver your tax return to the IRS on your behalf.
Tax Software Will Help You Fill Your Taxes Faster
Completing your taxes as a small business owner can be complicated. It can be difficult to determine what documents you need, which deductions you can make, and more. Fortunately, though, you don’t have to do everything on your own.
Tax software is an incredibly helpful resource for small business owners who need help completing their federal or state tax returns.
By gathering your tax documents in advance and choosing a high-quality tax software service, you can quickly and accurately file your taxes.
Want to learn more about filing taxes as a small business owner?