Your filing and payment obligations and due dates generally are based on the legal form in which you operate your business: sole proprietorship, partnership; or limited liability company (LLC); C corporation or S corporation.
The way your business is organized determines the income tax form you use (e.g., Form 1040 or Form 1120S) and the due date for filing those forms.
Saturday, Sunday, Holiday Rule. If a statutory due date falls a Saturday, Sunday, federal legal holiday, or a holiday in the District of Columbia, it is delayed until the next day that isn't a Saturday, Sunday, or legal holiday.
However, a statewide legal holiday delays a due date only if the IRS office where you are required to file your returns is located in that state.
Sole Proprietors Use Form 1040, Schedule C and Schedule SE
If you are a sole proprietor, you report your business income (or loss) on your Form 1040, U.S. Individual Income Tax Return. Generally, you must file Schedule C, Profit or Loss From Business, with your Form 1040, on an annual basis, to report your business income and deductions.
Sole proprietors are also required to file Schedule SE, Self-Employment Tax, with their Form 1040 as well. There may be other forms and schedules required, depending on the specific nature of your business activities during the year.
Due date. For calendar year taxpayers (and virtually every sole proprietor will be a calendar-year taxpayer,) the filing and payment of tax due date for these returns and schedules is April 15, unless the Saturday, Sunday, holiday rule moves the date to the next business day.
Filing extension. If you want an automatic six-month extension to file your tax return, you must file Form 4868, Application For Automatic Extension of Time To File U.S. Individual Income Tax Return, by the original filing deadline.
However, you must pay any tax you estimate will be due by the original filing deadline or you may be subject to interest and penalties on overdue taxes. Your actual return will be due on October 15, unless the Saturday, Sunday, holiday rule applies and moves the date to the next business day.
WarningRemember, the automatic extension only applies to filing of your return, not to paying any tax that may be due. For the 2013 tax year, you must pay any tax that is due by April 15, 2014, or you may be subject to interest and penalties on the overdue taxes. The interest and penalties can add up quickly and could dwarf the amount of your original liability if you ignore them.
Who Must File Schedule C?
If you are the sole owner of a business or operate as an independent contractor and you have $400 or more of net earnings, you're going to become very well acquainted with the tax form used by all these businesses: the Schedule C, Profit or Loss from Business, or its shorter cousin, the Schedule C-EZ, Net Profit From Business.
WarningIf you have $400 or more of business income over and above your expenses (net earnings,) you need to file a Schedule C or C-EZ and a Schedule SE to pay self-employment tax, even if you would not otherwise have enough income to be required to file a tax return.
Although you may know exactly what your business earnings are for normal accounting purposes, if you're close to the $400 threshold or actually had a loss for the year, you'll need to use IRS rules to compute your net business income for tax purposes in order to know the exact amount.
Think AheadIf your business does have a loss for the year, you should file a tax return anyway. That way you can take advantage of the opportunity to carry losses back and/or forward to future years, so you can deduct them in some other year(s) in which you do have a profit.
Reporting income and expenses for more than one business. If you run more than one business as a sole proprietorship, you'll need to net their income together to determine whether you've met the $400 threshold.
However, if you meet the filing threshold, you will need to file a separate Schedule C (or Schedule C-EZ) for each business. For example, if one business has a profit of $2,000 and another has a loss of $1,700, your net profit from both businesses is only $300 and you won't need to pay any self-employment tax for the year. We recommend that you do file a Schedule C and a Schedule SE anyway, just to demonstrate to the IRS that you computed your taxes correctly.
Who Can Use Schedule C-EZ?
Whenever you have an option as to which tax form you can use, it's generally best to use the simplest form that's available to you—provided you can claim every deduction to which you are entitled using the simpler form. Anything that simplifies tax return processing for the IRS is generally a good thing for the taxpayer, too.
So, you'll want to use Schedule C-EZ if you're eligible, which means that you:
- operated only one business during the year
- did not have an inventory at any time during the year
- did not have any employees during the year
- had total business expenses that did not exceed $5,000
- do not deduct expenses for business use of your home
- use the cash method of accounting
- did not have a net loss from your business
- do not have any prior-year unallowed passive activity losses for this business
- are not required to file a Form 4562, Depreciation and Amortization, for the year, which means that you did not place any depreciable property into service for the first time this year, and you're not claiming depreciation on any “listed property” such as a car, light truck, motorcycle, computer or peripherals, or photographic, audio/video, or communications equipment
If you do not meet all of these requirements, you must file Schedule C this year instead of C-EZ.
Statutory Employees Must File Schedule C or Schedule C-EZ
Statutory employees occupy a sort of middle ground between independent contractors and regular employees. They are workers in certain occupations who would not be considered employees under the usual rules, but who have been declared employees under the federal tax laws so that their employers must withhold FICA taxes from their income.
Workers Considered Statutory Employees. Workers in the following occupations that may be considered statutory employees, provided all the requirements are met:
- Full-time life insurance salespersons who work primarily for one insurance company.
- Agent-drivers and commission drivers who deliver beverages (other than milk), meat, vegetables, fruit, or bakery products or if they pick up and deliver laundry or dry cleaning. In addition, to qualify, individuals must:
- operate their own trucks or the trucks of the persons for whom they perform services,
- serve customers designated by their principals and customers they solicit on their own initiative,
- make wholesale or retail sales, and
- be paid commissions on their sales or earn the difference between what they charge their customers and what they pay their principals for the products or services they sell.
- Traveling or city salespersons (other than agent-drivers or commission drivers) who work full time on the principal's behalf and remit orders from customers who are retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses whose primary function is the furnishing of food or lodging. The orders must be for items that their customers will resell or will use as supplies in their business operations.
- Homeworkers who work on a contract or piecework basis, in their own homes or in the homes of others. For example, persons hired to type up correspondence and to do other word processing jobs on their home computers would be homeworkers.
Reporting income and expenses. If you are classified as a “statutory employee,” you will also report your income on Schedule C or C-EZ, although your employer should give you a Form W-2 that reports this income and shows that payroll taxes were withheld on it.
Because FICA taxes have already been paid by your employer on this income, you don't have to file a Schedule SE and pay Self-Employment Contributions Act (SECA) tax on it. Just be sure to check the box on Line 1 on your Schedule C or C-EZ, so that the IRS doesn't go looking for a Schedule SE that's not there.
Statutory employees are entitled to deduct their business expenses on Schedule C, and must pay income taxes on their net income since their employers are not required to withhold income taxes from their pay.
If you have both statutory employee income and other income from your own business, do not combine these two types of income on a single Schedule C. You must file two Schedule Cs, and only the income from your non-statutory-employee business will flow through to your Schedule SE.
Partnerships, LLCs Report Using Form 1065
If you operate your business as a partnership or LLC, you don't use a Schedule C. Instead, you will receive a Schedule K-1 that contains the information you must report on your Form 1040.
Partnerships and LLCs must file Form 1065. Even though partnerships and LLCs “pass through” their income and deductions to the partners/members, these entities must file a Form 1065. This means there is a double paperwork burden at tax time.
If you operate your business as a partnership, the partnership must file Form 1065, U.S. Partnership Return of Income, on an annual basis, to report income and deductions. In addition, each partner must receive a copy of Schedule K-1, Partner's Share of Income, Credits, Deductions, etc. (which is part of Form 1065), or a substitute K-1. Generally, partnerships must file Form 1065 by the 15th day of the 4th month following the date its tax year ended. This means for partnerships with a calendar year, the due date for the annual return and Schedule K-1 is April 15.
Unless the LLC has made an election to be taxed as a corporation for federal tax purposes, limited liability companies with more than one member are treated as partnerships, and LLC members are treated as partners. Thus, the LLC will have to file a Form 1065 and provide each member with a Schedule K-1 by April 15.
Extension of time to file. A partnership may apply for an automatic five-month extension to file its income tax return by filing Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns, by the regular due date of the partnership return. (As with nearly all IRS forms, Form 7004 can be electronically filed.) So, if you have a calendar-year partnership and you file an extension, your partnership return is due on September 15. (Or, the next business day if the 15th falls on a Saturday, Sunday or legal holiday.)
Due dates for fiscal year partnerships. If your partnership uses a fiscal year rather than a calendar year, the annual partnership return (including all the applicable schedules), must be filed no later than the 15th day of the fourth month after the end of the partnership's tax year. (Remember, the Saturday, Sunday, holiday rule may shift this due date from the 15th to the number business day.)
A fiscal year partnership is entitled to the same automatic five-month extension to file its return to which a calendar year partnership is entitled. The extension request (Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns) must be filed by the date the original return is due (the 15th day of the fourth month after the partnership's tax year). The due date for the filing of the return then is the 15th day of the fifth month after the original due date of the return.
Beware of Late Payment, Underpayment Penalties
It is a very serious mistake to pay your taxes late or to underpay them. The IRS will generally assess both interest and penalties on the amount of the underpayment and these amounts can quickly add up to more than your original tax bill.
Interest on the taxes owed. The IRS will charge you interest on taxes not paid by their due date, even if you've been granted an extension of time to file your return. Rates are adjusted quarterly. Since 2000, the interest rates have fluctuated between a high of 9 percent and a low of 3 percent (the rate as of first quarter, 2013).
Interest on the penalties imposed. Interest is also charged on the penalties imposed for failure to file a return as well as other penalties imposed for negligence, fraud, etc. This interest is charged on the penalty from the due date of the return, including extensions.
Penalties. If you pay your taxes late, the penalty is usually 0.5 percent of the unpaid amount for each month or part of a month the tax is not paid. The penalty can't be more than 25 percent of the unpaid amount and applies to any unpaid tax on the return. Please note, this penalty is in addition to the interest charged for late payments.
You can also have a penalty imposed if you file your return late. If you don't file your return by its due date (including extensions), the penalty is usually five percent of the amount due for each month or part of a month your return is late, unless you have a reasonable explanation.
If you think you have a reasonable explanation, write it down in a statement and attach it to your return, and you might be able to avoid the penalty. In any case, the penalty usually can't be more than 25 percent of the tax due. However, if your return is more than 60 days late, the minimum penalty will be $135 or the amount of any tax you owe, whichever is smaller.
Generally, corporations are subject to the same rules as individuals--although the interest rates are higher for larger corporations. However, corporations are also subject to penalties if they don't deposit taxes or deposit them after the due date. Deposits of tax after the due date are subject to a penalty on the underpayment. The underpayment is the excess of the required tax deposit over the tax deposited by the due date.
Estimated tax penalty. There are also penalties assessed if you owe estimated tax, but do not pay it on time. (See, “Plan Estimated Tax Payments to Avoid Penalties“)
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Category: Federal Taxes
Tags: Tax Planning
