Federal Income Tax Basics

Which forms to use and how to file your federal business income tax

When it comes to federal income tax, USA citizens tend to look upon April with dread. Yet with a little preparation and understanding of the system, federal income tax filing needn't be stressful. How to file and what to pay varies from business to business, but armed with a little knowledge, you can file the appropriate forms in no time.

When looking at federal income tax basics, there are three main categories all business owners should consider. These are:

1. Knowing which taxes to pay and which federal income tax forms to fill out,

2. Filing you business' federal income tax information yourself,

3. And hiring a tax professional to fill out your 1040 tax form and other business forms.

 

Match your business to the correct federal income tax form

There are four basic types of taxes businesses pay: income tax, self-employment tax, employment taxes and excise tax. All businesses (except partnerships) must pay yearly income taxes, but different forms are required depending upon your specific business. Self-employment tax pays for social security and Medicare for those who work for themselves, and you must pay employment tax if you have any employees. Excise tax is applicable if you sell or manufacture certain products, operate specific kinds of business or use some specific types of facilities, equipment or products.
Try: The IRS offers a great many federal income tax articles geared toward businesses; see their "Business Taxes" page for complete information about what types of businesses must use certain tax forms. "Income Tax Basics for Your Startup" at Entrepreneur.com is another good starting point for learning what type of taxes you will need to pay.

File your federal income tax return yourself

These days, you don't have to be a tax expert to file your own federal 1040 form. There are many excellent tax programs available for small businesses that practically do all the work for you. Choose a reliable piece of software, answer the question prompts carefully, and you can prepare your own taxes with relative ease.
Try: TurboTax, popular software from Intuit, offers a small business version that makes preparing your own taxes a cinch. For good information on preparing your own business taxes, visit BusinessTaxRecovery.com.

Hire a pro to file your federal business income tax

If you have never filed business taxes before, it makes sense to consult a professional tax preparer at least once. Certain types of businesses may be so complicated, in tax terms, that it makes sense to hire a professional every year. Or if you simply don't want to spend your own time preparing your federal income tax 1040, hiring someone well-versed in the tax code also makes sense.
Try: Nolo offers good advice on who to hire to prepare your business taxes, as does The Motley Fool.

 

• If you loath your basic 1040 filing because you tend to keep poor records, hire a tax professional to help you set up a record keeping system that's suited not only to your business, but also your personality.

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