How are different forms of business taxed

Income Tax Terms Guide

Lea Uradu, J.D. is graduate of the University of Maryland School of Law, a Maryland State Registered Tax Preparer, State Certified Notary Public, Certified VITA Tax Preparer, IRS Annual Filing Season Program Participant, Tax Writer, and Founder of L.A.W. Tax Resolution Services. Lea has worked with hundreds of federal individual and expat tax clients.

What Are Taxes?

Taxes are mandatory contributions levied on individuals or corporations by a government entity—whether local, regional, or national. Tax revenues finance government activities, including public works and services such as roads and schools, or programs such as Social Security and Medicare.

In economics, taxes fall on whoever pays the burden of the tax, whether this is the entity being taxed, such as a business, or the end consumers of the business’s goods. From an accounting perspective, there are various taxes to consider, including payroll taxes, federal and state income taxes, and sales taxes.

Key Takeaways

Understanding Taxes

To help fund public works and services—and to build and maintain the infrastructure used in a country—a government usually taxes its individual and corporate residents. The tax collected is used for the betterment of the economy and all who are living in it.

In the United States and many other countries in the world, income taxes are applied to some form of money received by a taxpayer. The money could be income earned from salary, capital gains from investment appreciation, dividends or interest received as additional income, payments made for goods and services, and so on.

Tax revenues are used for public services and the operation of the government, as well as for Social Security and Medicare. As the large baby boomer generation has aged, Social Security and Medicare have claimed increasingly high proportions of the total federal expenditure of tax revenue. Throughout U.S. history, tax policy has been a consistent source of political debate.

A tax requires a percentage of the taxpayer’s earnings or money to be taken and remitted to the government. Payment of taxes at rates levied by the government is compulsory, and tax evasion—the deliberate failure to pay one’s full tax liabilities—is punishable by law. (On the other hand, tax avoidance—actions taken to lessen your tax liability and maximize after-tax income—is perfectly legal.)

Most governments use an agency or department to collect taxes. In the United States, this function is performed federally by the Internal Revenue Service (IRS).

Types of Taxes

There are several very common types of taxes:

Tax systems vary widely among nations, and it is important for individuals and corporations to carefully study a new locale’s tax laws before earning income or doing business there.

Below, we will take a look at various tax situations in the United States. Generally speaking, the federal government levies income, corporate, and payroll taxes; the state levies income and sales taxes; and municipalities or other local governments mainly levy property taxes.

Income Tax

Like many nations, the United States has a progressive income tax system, through which a higher percentage of tax revenues are collected from high-income individuals or corporations than from low-income individual earners. Taxes are applied through marginal tax rates.

A variety of factors affect the marginal tax rate that a taxpayer will pay, including their filing status—married filing jointly, married filing separately, single, or head of household. Which status a person files can make a significant difference in how much they are taxed. The source of a taxpayer’s income also makes a difference in taxation. It’s important to learn the terminology of the different income types that may affect how income is taxed.

Capital gains taxes are of particular relevance for investors. Levied and enforced at the federal level, these are taxes on the profit generated when you sell an asset that’s increased in value.

The rate of taxation on the profit depends on the length of time for which the asset was held. Short-term capital gains (on assets sold one year or less after they were acquired) are taxed at the owner’s ordinary income tax rate, whereas long-term gains on assets held for more than a year are taxed at a lower capital gains rate—based on the rationale that lower taxes will encourage high levels of capital investment. Tax records should be maintained to substantiate the length of ownership when both the assets were sold and the tax return was filed.

Payroll Taxes

Payroll taxes have both an employee portion and an employer portion. The employer remits both the employee portion, described above, and a duplicate amount for the employer portion. The employer rates are the same 6.2% for Social Security up to the wage base limit, and 1.45% for Medicare on all wages. Therefore, the total remitted is 15.3% (6.2% employee Social Security + 6.2% employer Social Security + 1.45% employee Medicare + 1.45% employer Medicare).

Payroll taxes and income taxes differ, although both are withheld from an employee’s paycheck and remitted to the government. Payroll taxes are specifically to fund Social Security and Medicare programs. A self-employed individual must pay the equivalent of both the employee and employer portion of payroll taxes through self-employment taxes, which also fund Social Security and Medicare.

Corporate Taxes

Corporate taxes are paid on a company’s taxable income. The steps to calculate a company’s taxable income are:

The corporate tax rate in the United States is currently a flat rate of 21%. Before the Tax Cuts and Jobs Act (TCJA) of 2017, the corporate tax rate was 35%.

Sales Taxes

Sales taxes are charged at the point of sale when a customer executes the payment for a good or service. The business collects the sales tax from the customer and remits the funds to the government.

Each state can implement its own sales taxes, meaning they vary depending on location. There’s even room for cities and counties to use their own rates, provided that they abide by the taxing rules of their state.

In 2021, the highest average state and local sales tax rate was found in Tennessee, at 9.55%. Five states—Alaska, Delaware, Montana, New Hampshire, and Oregon—did not have a state sales tax, although Alaska did allow municipalities to charge local sales tax.

Property Taxes

Property tax rates vary considerably by jurisdiction and many states also tax tangible personal property, such as cars and boats.

Tariffs

A tariff is a tax imposed by one country on the goods and services imported from another country. The purpose is to encourage domestic purchases by increasing the price of goods and services imported from other countries.

There are two main types of tariffs: fixed fee tariffs, which are levied as a fixed cost based on the type of item, and ad valorem tariffs, which are assessed as a percentage of the item’s value (like the real estate tax in the previous section).

Tariffs are politically divisive, with debate over whether the policies work as intended.

Estate Taxes

Some states levy their own additional estate or inheritance tax, with exclusion limits that differ from those of the federal government.

Estate taxes are different from inheritance taxes in that an estate tax is applied before assets are disbursed to any beneficiaries. An inheritance tax is paid by the beneficiary. There is no federal inheritance tax, and, as of 2021, only six states have an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.

Tax Delinquency

Every type of tax has a different due date or reporting requirement. Some are collected immediately at the time of a transaction or leading up to a transaction like sales taxes or tariffs. Others are on a fixed recurring schedule with a due date repeating on a specific date or specific day/month combination (i.e. property taxes being due the first day of April). The due dates for similar types of taxes will vary across governing bodies (i.e. different counties will have different property tax due dates).

Upon failure to remit the appropriate amount of a tax to the taxing authorities, various penalties may be incurred. Regarding the various taxes mentioned above, tax penalties may include:

Why Do We Pay Taxes?

Taxes are the primary source of revenue for most governments. Among other things, this money is spent to improve and maintain public infrastructure, including the roads we travel on, and fund public services, such as schools, emergency services, and welfare programs.

How Do Income Taxes Work in the U.S.?

In the U.S., taxation progressively increases as an individual’s income grows. There are currently seven federal tax brackets in the U.S., with rates ranging from 10% to 37%.

Are U.S. Taxes Low?

Generally speaking, U.S. taxes are lower than in other developed nations. In 2018, total U.S. tax revenue represented 24% of gross domestic product (GDP) according to the Tax Policy Center, whereas the average among the other 35 member countries of the Organisation for Economic Co-operation and Development (OECD) was 34%.

Who Needs to Pay Taxes?

The taxpayer will depend on the type of tax and associated regulation for that tax. For example, federal income tax legislation usually only pertains to people who have earned a certain amount of income or adjusted gross income. Corporate taxes may be limited to companies that have performed business in a specific area or are incorporated to do business within a specific country. Each tax is handled differently, and there are often exceptions and qualifications for who the tax pertains to.

What Are Different Types of Taxes?

Taxes can classified in different ways. Some taxes may be incurred on transactions (i.e. sales taxes or tariffs). Other taxes are incurred on net financial results (i.e. individual income taxes or corporate income taxes). There are also taxes that occur due to one-time or non-recurring events (i.e. estate taxes, capital gains taxes).

The Bottom Line

There are many types of taxes that are applied in various ways. Understanding what triggers a tax situation can enable taxpayers to manage their finances to minimize the impact of taxes. Techniques that can help include annual tax-loss harvesting to offset investment gains with investment losses, and estate planning, which works to shelter inherited income for heirs.

How Various Types of Businesses Pay Income Tax

John Lund, Marc Romanelli, Blend Images/Getty Images

An important consideration when you’re deciding what type of business to form is how each one of them pays income taxes. The process is different for each, sometimes markedly so, and types of business taxes can have a significant impact on your personal tax return.

Pass-Through Businesses and Income Taxes

Some businesses pass their earnings and losses to their owners, who pay income taxes on their share of the business’s taxable income. These are called «pass-through» taxes.

Businesses that are pass-through tax entities:

Corporations are not pass-through businesses. The corporation pays income taxes on its earnings, and the individual shareholders (owners) pay income tax on dividends they receive.

Here’s an explanation of how pass-through taxes work:

Self-Employment Tax for Business Owners

Owners of pass-through businesses also must pay self-employment tax (Social Security/Medicare tax) on their business income. S corporation owners are an exception; they don’t have to pay self-employment tax. 

How a Sole Proprietor Pays Income Tax

A sole proprietorship is the simplest form of business in the U.S. You’re a sole proprietor if you’re self-employed or an independent contractor unless you’ve registered as another form of business entity. A sole proprietorship is more or less formed by default when you don’t take steps to register as another type of enterprise but you’re in business for yourself.

Sole proprietors complete Schedule C to determine their taxable business income after deductions. The income resulting from Schedule C is transferred to the owner’s personal tax return and tax is paid at the owner’s personal tax rate.

Sole proprietors must also file Schedule SE and pay the self-employment tax—the equivalent of the Medicare and Social Security taxes that would otherwise be shared with their employer if they worked for someone else.

You should make quarterly estimated tax payments throughout the tax year if you’re a sole proprietor because the IRS prefers that you pay as you earn. This involves filing Form 1040-ES. 

How a Partnership Pays Income Tax

A partnership is the result of two or more individual taxpayers joining together for business purposes, and they share in both the profits and the losses of the business. Partnership businesses don’t pay income tax directly to the IRS. Their partners are taxed on their shares of the partnership’s income.

Business income or loss is calculated on Form 1065, and the individual partners then receive Schedules K-1 showing their shares of this income. Schedule K-1 is included with the owner’s personal tax return and taxes are paid at the owner’s personal tax rate, just as they would be if they were sole proprietors.

Partners must also pay the self-employment tax and make quarterly estimated tax payments. 

How a Limted Liability Company (LLC) Pays Income Tax

A limited liability company (LLC) isn’t recognized by the Internal Revenue Service as a business entity for tax purposes, so LLCs are taxed as other business entities. This can depend on how many owners the business has (referred to as members). Members can be individuals or other business types, such as a corporation.

A member in a single-member LLC files taxes as a sole proprietor does, using Schedule C and Schedule SE. As with a sole proprietorship, the income of the business is transferred to the member’s personal tax return. LLC members should also pay quarterly estimated taxes.

A multiple-member LLC files taxes as a partnership, with individual member shares reported on Schedule K-1. It can also file Form 8832 and elect to be treated as a corporation for federal tax purposes. 

How a Corporation Pays Income Tax

A corporation is its own separate tax entity, and it pays income tax at the corporate tax rate. The owners of the corporation are shareholders, and they receive income in the form of dividends. They pay taxes on this income at the dividend rate.

This can result in double taxation. The business is paying taxes on its earnings at the corporate level, and shareholders are again paying taxes on the dividends they receive. Capital gains on the sale of shares can also be taxed at the individual level.

Some shareholders might also be executive employees of the corporation. These employees receive a salary and this income is taxed just as it would be for any other employee.

A corporation reports and files its taxes on Form 1120. 

How an S Corporation Pays Income Tax

An S corporation is a type of corporation that pays taxes at the personal tax rate of the owners. It passes income, taxes, credits, and deductions down to its owners. The S corporation does not itself pay taxes, unlike a corporation, so there’s no double taxation.

The tax paid by the owners/shareholders is determined by the total amount of the tax that would be owed by the S corporation were it required to pay taxes. This total is then divided among the shareholders based on their percentages of ownership.

The corporation files a tax return using Form 1120-S to report income passed down to shareholders, and individual owner shares are reported on Schedule K-1. 

If One Business Owns Another Business

One business can own another business. For example, a corporation can own all or part of an LLC, or one LLC can own another LLC.

The owner pays the taxes if the company being taxed is a pass-through business entity—a partnership, LLC, or S corporation that passes its tax down to its owners. For example, the tax for an LLC would be calculated and the tax would be reported by the corporation if the corporation owned the LLC.

The corporation itself pays the tax if the business owned by another business is a corporation; the owners don’t.

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How are Businesses Taxed?

An overview of personal and business income taxes.

Updated at September 24th, 2021

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Table of Contents

How are business entities taxed?

Understanding basic taxation concepts as they apply to each entity type will give you sufficient background to understand the important tax considerations in a transaction by a given business entity. To understand taxation of business entities, it is important to understand personal taxation as well as business taxation.

What is Individual Income Taxation?

Individuals pay federal and state taxes on a percentage of their adjusted gross income (AGI) in a given tax year. AGI is calculated as an individuals gross income, minus all deductions (either the standard deduction or itemized deductions) and the individuals personal exemption. A persons gross income is comprised of wages or other income, dividends, and investment interest, gains, dividends, rents, royalties, etc. Deductions are numerous categories of expenses that the state and federal government exempts from taxation. A person can either claim individual deductions, known as itemizing deductions or claiming a standard deduction.

The income tax rates for wages and other income are tiered. All individuals pay a fixed percentage on the first several thousand dollars of their AGI, a fixed percentage on the next several thousand, etc.

Individuals also pay taxes on gains. Gains consist of value received and recognized when an asset is sold for a higher value than the owners basis in the property. Long-term capital gains (gains on certain assets held longer than 12 months) and dividends are taxed at different rates than other forms of gross income. Short-term capital gains are taxed at ordinary income rates. The tax rate for long-term capital gains and qualified dividends may also be tiered based upon income. While they are included in gross income, qualified dividends and long-term capital gains are subject to different tax rates from other sources of income.

What is Business Income Taxation?

Business taxation is more complicated than individual taxation. Business entities are either not taxed at all, or they are taxed at a corporate rate. If a business entity is classified as a pass-through tax entity, it does not pay income taxes. Rather, the business owners pay taxes on any business profits. Restated, the profits or losses from the business activity pass through to the individual and are reported on her individual income tax form. Businesses that pay taxes, such as businesses taxed under Subsection C of the Internal Revenue Code («C-Corps), are taxed at the corporate rate. Like the individual tax system, the corporate tax rate is tiered.

Business entities taxed under Subsection C of the Internal Revenue Code (IRC) pay income taxes on profits. Corporations taxed in this manner are known as C-corporations. These taxes are treated as an expense to the corporation. They are deducted, along with other expenses, to determine whether the corporation is profitable or has profits at the end of the tax year. Any distribution of corporate profits to shareholders is a dividend and is taxed to the shareholder at the applicable dividend rate. The shareholder reports those dividends on her personal income tax return.

Related Topics

Discussion Question

Can you think of a situation where an individual would be subject to a personal income taxes on a portion of the money received from a corporation and subject to dividend taxes on other amounts of money received? Please explain.

Practice Question

How Are Different Business Entities Taxed?

There’s a lot that’s great about owning a business: Being your own boss. Engaging in an industry you’re passionate about. Being able to say you built something on your own.В В

Then there’s the taxes.В В

Once you enter the world of entrepreneurship, taxes can get a lot more complicated. Granted, taxes are just one of many factors that will play into your businessВ strategy, butВ knowing how different business entities are taxed can help you decide what kind of company you want to start or eventually evolve into.В В

Below, we’ve put together a cheat sheet on how income is taxed based on the legal structure of your business. Of course, we’re just scratching the surface. You’ll want to consult a tax advisor to get a thorough understanding of which type of entity is the right choice for you, including how other types of taxes — such as self-employment taxes — are handled within each kind of business. That said, consider this your jumping off point.В В

Sole proprietorship

Being a sole proprietor means you own and run your business by yourself; your business is not a separate legal or tax entity.В SoВ you and your business are one and the same from the IRS’ point of view, which means any assets and liabilities are reported by you on your personal 1040 income tax return. This is the simplest form of taxation for the self-employed.В

Because a sole proprietorship is considered a “pass-through” business — meaning the business income passes through to the owner and is taxed at his or her ordinary income tax rate — sole proprietors mayВ be able to deduct up to 20 percent of their qualified business income. This wasВ introduced as part of last year’sВ tax-law changes.В В

However, determining whether you qualify for this deduction can get complicated. It depends not only on the amount of pass-through income you make, but also on the type of business you have;В here’s some guidance from the IRSВ to help you figure out whether your business qualifies.В

If you own a non-service business, you still may be able to take a deduction beyond that income limit, but it’ll be the lesser of the following calculations:В

20 percent of your QBI, orВ

The greater of 1) 50 percent of your W-2 wages or 2) 25 percent of your W-2 wages plus 2.5 percent of your qualified property cost (i.e., the cost of certain real estate or equipment you own).В

Confused yet? That’s why it’s important to talk to a tax professional to help you determine if you qualify for this deduction. Things can get especially unclear if your business has both a service and non-service component to it.В В В

Partnership

When two or more people plan to own a business together, they may choose to form a partnership. PartnersВ generally haveВ a partnership agreement that outlines details like how you’ll share profits and losses and make contributions to the business. The partners may also have to register their business with their state; state laws will determine the rights of partners as it pertains to their participation in management and the extent of their liability.В В

Despite that, from a tax perspective, your partnership is not a separate taxpaying entity. It does have to report its income, deductions, losses and other information to the IRS by filing aВ Form 1065, but a partnership allocates its profits and losses to its partners, who report it on their individual tax returns and pay tax on it. The partners may also qualify for the QBI deduction of up to 20 percent of the income they make from the partnership.В В

Limited liability company (LLC)В

A limited liability company, or LLC, can also be taxed as a pass-through entity. An LLC can be formed by an individual or group of individuals, also known as members. It is a separate legal business entity from its members. Technically, there is no such thing as being taxed as an LLC. Unless an election is made with the IRS, an LLC with one member is taxed as a sole proprietorship, while a multi-member LLC is taxed as a partnership. An LLC can elect to be taxed as a C corporation or an S corporation, if it qualifies as such.В В

A business owner or owners might choose to form an LLC in order to retain the pass-through income status that sole proprietorships or partnerships have, while also having some of the liability protection of a business entity. Apart from the tax considerations, an LLC has fewer statutory requirements and formalities that need to be followed than a corporation, and more flexibility than a partnership when it comes to managing the business.В В

S Corporation

A corporation can also have pass-through tax treatment, if the business elects to be taxed as an S corporation. To become an S corp, however, you must meetВ certain qualifications. S corps also need to fileВ form 1120SВ to report information like income, deductions, profits and losses to the IRS.В В

There are several differences between an SВ corpВ and other pass-through businesses, however. One of them is that an owner who performs services for the business is considered both an employee and an owner from a tax perspective — and must be paid a reasonable wage compared with standards for that profession. That means business owners would report some of their income as W-2 employee wages, and some as the share of profits they received as an owner. Having income split up this way couldВ ultimately helpВ a business owner save in self-employment taxes. Other major differences include rules around shareholder rights and how debt is treated, so make sure you’re considering everything before deciding on becoming an S corp.В В

C CorporationВ

A corporation that doesn’t elect to be taxed as an S corporation is taxed as a C corporation. A C corporation is a completely standalone tax entity from the people who own the company. Although a CВ corpВ has shareholders, profits are taxed separately under the corporation’s name, so it does not constitute a pass-through business (a corporate tax return is filed usingВ form 1120). A CВ corpВ can, however, still share profits with its owners.В В

This means that the profits from a C corporation are taxed twice. The corporation itself pays taxes at the flat 21 percent corporate tax rate (although most corporations end up paying a smaller effective tax rate after deducting expenses). Then, when profits are shared with the company’s shareholders as dividends, those are taxed on the shareholder’s personal income tax returns (either as ordinary income or as capital gains).В В

Of course, taxation is just one piece of the puzzle when it comes to starting or growing a business, and your business’ structure may change over time along with your needs. To get a deeper understanding of the right tax strategies for your business, talk to a tax advisor who has experience working with business owners. A financial advisor can also help you see how your business and personal financial plans work together to meet your personal financial goals.В

This article is not intended as legal or tax advice. Northwestern Mutual and its financial representatives do not give legal or tax advice. Taxpayers should seek advice regarding their particular circumstances from an independent legal, accounting or tax adviser.В

A Complete Guide to Filing Your Business Taxes

As a business owner, understanding your federal, state and local taxes is vital to your overall success. Here is everything you need to know about filing business taxes.

By: Sean Peek, Contributor

This story was updated 2/17/2021.

As a business owner, understanding your federal, state and local taxes is vital to your overall success. All businesses must pay business taxes, but the type of business entity you own determines which taxes you must pay and how you go about paying them.

Knowing how to file your taxes properly and on time allows you to spend minimal time working on IRS tax forms so you can focus on running your business. In this guide, we break down everything you need to know about business taxes, from your Employer Identification Number to common business tax forms.

What is an Employer Identification Number (EIN)?

An Employer Identification Number (EIN) is your business’s federal tax ID number. Most businesses require an EIN to file business taxes, but not all. According to the IRS, you need to apply for an EIN if any of the following items apply to your business:

If you do require an EIN, you can apply for one on the IRS’s website.

Types of business taxes

The taxes you’re required to pay depend largely on two elements: the type of business you own and the state you do business in. According to the IRS, these are the different business taxes you can anticipate:

Income taxes

All business entities — aside from partnerships — must file and pay taxes on received income during the year. Nearly all states impose a business or corporate income tax, but each state has its own tax laws. As you prepare your business taxes for the year, make sure you understand your required income tax at the state and local level.

Estimated taxes

Self-employment taxes

The self-employment tax (SE tax) is a Social Security and Medicare tax that contributes to your coverage under the social security system. Social Security coverage provides you with retirement, disability, survivor and Medicare benefits.

Employment taxes

If you have W-2 employees, you must file and pay certain federal taxes that include social security and Medicare taxes, federal income tax withholdings and federal unemployment tax. Furthermore, each state requires specific state employment taxes, such as unemployment insurance and workers’ compensation insurance, so make sure you get all the information you need at your state’s department of taxation.

Excise taxes

These taxes are paid when purchases are made on certain goods, such as gasoline, and are often included in the price of the good. There are many different types of businesses that are required to pay excise taxes, but fuel is usually a major component. Excise taxes are collected mostly from sales of motor fuel, airline tickets, tobacco, alcohol and health-related goods and services. For a more complete list, visit the IRS’s page on excise taxes.

Filing tax forms

With an understanding of which taxes your business may be required to pay, you can familiarize yourself with the right forms. While most tax preparation companies and software packages provide the correct forms for you, it’s best to get acquainted with them so you can fill them out accurately and quickly when the time comes.

The IRS provides a thorough list of business tax forms and instructions, though if you’re not sure you have everything you need, you should consult a Certified Public Accountant (CPA), professional tax preparer or tax accountant.

If you run a sole proprietorship or operate your business as a single-member limited liability company (LLC), you will likely need to fill out a Schedule C (Form 1040) to report your business’s income and losses. In many cases, if you fill out a Schedule C form, you will also need to submit a Schedule SE (or self-employment tax) form. Schedule C is a simple business tax form at only two pages long. To complete this form, you simply list all the expenses you claim, then subtract your expenses from your earnings to find your net profit or loss. Finally, you transfer this number to your personal income tax form.

Knowing how to file your taxes properly and on time allows you to spend minimal time working on IRS tax forms.

If your business is a corporation, or if you opt to treat your LLC as one, then you must prepare a separate corporate tax return on Form 1120 (or Form 1120S for S corps), which is the estimated tax form for corporations. Form 1120 is similar to Schedule C, as you calculate your business income the same way. However, this form is often more complicated because it requires more details than Schedule C, and you must file it separately from your personal income tax return.

Here is a list of the common tax forms your business may be required to file depending on the type of business you own:

Annual return of income (partnerships)

Income tax

Self-employment tax

Estimated tax

Employment tax

Social Security, Medicare taxes and income tax withholding

Federal unemployment (FUTA) tax

For a more complete list of tax forms, consult a business tax professional or visit the IRS’s tax forms and instructions page.

Deadlines, extensions and past due

If you don’t file your business taxes on time and become delinquent, you may face fines, penalties and back taxes, so it’s important to know when they are due. Here are some of the most important business tax due dates for the upcoming year:

January 15, 2021

File and pay quarterly estimated tax for last quarter of 2020 using Form 1040-ES.

February 1, 2021

Deadline to provide information statements (for example, Forms 1099 and 1099-NEC) to recipients of certain payments during 2020. See IRS General Instructions for Certain Information Returns.

Deadline to provide employees with W-2 for 2020.

Deadline to file Form W-3, Transmittal of Wage and Tax Statements, including copy A of all W-2s issued.

File and pay Federal Unemployment Tax for 2020 using Form 940.

File and pay any Withheld Income, Social Security and Medicare Taxes for the fourth quarter of 2020 using either Form 941 or Form 944. (If you made all 2020 payments on time and in full, this deadline is February 10).

File and pay 2020 income tax if you did not make a final quarterly payment of estimated income tax for 2020 by the due date of January 15. Filing and paying any amount due by this date will avoid a penalty for late payment. Use Form 1040 or 1040-SR. File a separate Schedule C for each business or a separate Schedule F for each farm business.

February 16, 2021

Provide information statements to recipients of certain payments during 2020 using Forms 1099-B or 1099-S.

Begin withholding income tax from any employee who did not give you a W-4 for 2021.

March 1, 2021

File information returns for payments made in 2020 (certain Forms 1099). Use Form 1096 to summarize and transmit these payments. See General Instructions for Certain Information Returns.

March 15, 2021

File 2020 income tax return using Form 1065.

Provide each partner with Schedule K-1 (Form 1065).

File Form 7004 to request an automatic six-month extension.

File 2020 income tax return using Form 1120-S and pay any tax due.

Provide each shareholder with Schedule K-1 (Form 1120-S).

File Form 7004 to request automatic six-month extension and pay estimated tax owed.

March 31

File 1099 and similar forms electronically. For information see IRS Publication 1220.

April 15, 2021

File and pay your personal income tax using Forms 1040 or 1040SR. File a separate Schedule C for each business or a separate Schedule F for each farm business.

For an automatic six-month extension, file Form 4868 and pay estimated amount owed.

File and pay first quarter 2021 estimated income tax using Form 1040-ES.

File income tax return for 2020 using Form 1120. Pay any tax due.

File for automatic extension using Form 7004. Deposit estimated taxes.

Deposit first quarter estimated income tax for 2021. Use worksheet 1120-W.

April 30, 2021

File and pay withheld Social Security, Medicare and Income tax for first quarter of 2021 using Form 941 (If you made payments on time and in full, the deadline is May 10).

June 15, 2021

File and pay second quarter 2021 estimated income tax using Form 1040-ES.

Deposit second estimated income tax payment for 2021.

August 2, 2021

File and pay withheld Social Security, Medicare and Income tax for second quarter of 2021 Form 941 (If you made payments on time and in full deadline is August 10).

If you have an employee pension, profit-sharing or stock bonus plan, file Form 5500 or 5500-EZ for 2020. Consult IRS.gov for information on this form.

September 15, 2021

File and pay third quarter 2021 estimated income tax using Form 1040-ES.

File 2020 income tax return using Form 1065 if you requested a six-month extension.

File 2020 income tax return using Form 1120-S if you requested a six-month extension.

Provide each shareholder a copy of Schedule K-1 Form 1120-S.

Deposit third installment of estimated Income tax using Worksheet 1120-W to estimate.

October 15, 2021

If you filed for a six-month extension of income tax, file and pay using Forms 1040 or 1040SR. File a separate Schedule C for each business or a separate Schedule F for each farm business.

If you filed for a six-month extension of income tax, file and pay using Form 1120.

November 1, 2021

File and pay withheld Social Security, Medicare and Income tax for third quarter of 2021 using Form 941. (If you made payments on time and in full deadline is November 10).

December 15, 2021

Deposit fourth installment of estimated Income tax using Worksheet 1120-W.

Determining which of these dates apply to your business, adding in your state and local deadlines, and setting reminders will help your business avoid costly penalties and help you avoid unnecessary worry.

While preparing your business taxes can be overwhelming and time-consuming, investing the time to prepare, calculate and plan your taxes can help you make smart business decisions and avoid hefty penalties and fees. If you’re not comfortable working on your business taxes alone, consult a CPA or other business tax professional.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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