Federal Income Tax Key Terms

Learn income tax key terms that can help you file

Just as individuals need to file a federal income tax, businesses need to as well. Most of the time they file a Federal 1040 tax form just as individuals do, but usually with additional forms to file. However, tax preparation can be as easy for businesses as it is for an individual with the help of a tax professional or tax preparation software.

Learn the types of taxes you may need to pay on your business. Although the basic types include income tax, employment tax, excise tax and self-employment tax, you may not be responsible for all of these. Be sure to account for the deductions and depreciation you can take for your business. Also, don’t forget to take any tax credits you’re entitled to, since this can greatly reduce what you owe.

 

Federal 1040 tax forms

Federal 1040 tax forms may include a schedule C if you're a sole proprietor, or a schedule E if you're a partnership. There are some other forms if you're a corporation. There are many resources that can help you figure out which forms you need.
Try: The Internal Revenue Service (IRS) has a tax form resource page.

Tax preparation

These days, it's easy to get a tax software package to prepare your income taxes. These packages make it easy to do your own taxes. If you're still worried about the outcome, you can hire someone to prepare your taxes for you.
Try: TurboTax is an excellent tax preparation software package you use for both personal and business use. The business edition is an extension of the personal version; if you have used TurboTax for personal use it’s easy to make the switch to the business version. Use Nolo for guidance on hiring a tax business professional.

E-filing

E-filing is easy to do, and you'll get a refund from the IRS much faster. However, if you have to pay, you may want to submit your taxes the old-fashioned way -- with an envelope and stamp -- to slow the process down.
Try: The Wall Street Journal has a great article on e-filing that explains why you should do it.

Income tax, employment tax, excise tax and self-employment tax

These are the four basic taxes a business needs to pay. All businesses except a partnership should file an annual income tax return. Employment tax applies if you have employees; excise tax may be necessary, depending on your type of business; and self-employment tax pays for Medicare and Social Security.
Try: The IRS explains each of each of these taxes and the forms you'll need to file them.

Deductions and depreciation

Deductions are legitimate business expenses that you can deduct from your gross income. Depreciation is a legitimate business expense that you take for equipment and furniture used in your business.
Try: Entrepreneur.com explains deductions and depreciation, and why you may not want to take certain deductions or use all the depreciation you are entitled to in the same year.

Tax credits

Tax credits, unlike deductions, come right off the amount of tax you have to pay. You need to make sure you take every tax credit you're entitled to in order to pay the least amount of tax.
Try: BusinessTaxRecovery.com gives links to articles about tax credits. The page is updated frequently to keep you on top of the credits you can take.

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