Guides
Federal business tax obligations and filing basics
Federal business tax basics: how entity type shapes returns, estimated payments, payroll and contractor reporting, plus why tax figures must be tied to a year.
What to take away
- Your entity type decides the returnSchedule C on Form 1040, Form 1065, Form 1120-S or Form 1120.
- Four obligations run on separate clocksincome tax, employment or self-employment tax, estimated payments, and information reporting.
- For a calendar-year business, Form 1065 and Form 1120-S are due March 15 and Form 1120 is due April 15.
- Estimated tax lands on four dates, and an underpayment carries interest plus a penalty.
- Payroll is quarterly on Form 941, with W-2 and 1099-NEC statements due by the end of January.
Which federal return follows from your entity type
| Entity | Return you file | Where the profit is taxed |
|---|---|---|
| Sole proprietor, or single-member LLC with no election | Form 1040, Schedule C | On your personal return, plus self-employment tax on Schedule SE |
| Partnership, or multi-member LLC with no election | Form 1065, with a Schedule K-1 for each partner | On each partner's personal return |
| S corporation | Form 1120-S, with a Schedule K-1 for each shareholder | On each shareholder's personal return |
| C corporation | Form 1120 | At the entity level, and again on dividends |
An LLC is not a tax classification by itself. A single-member LLC is ignored for federal tax and files Schedule C unless it elects otherwise. A multi-member LLC defaults to partnership treatment.
Form 2553 elects S corporation status; Form 8832 elects corporate treatment. Both have timing rules tied to the date the change should begin.
For a calendar-year business, Form 1065 and Form 1120-S are due March 15 and Form 1120 is due April 15. Form 7004 extends the filing date only, not the date the tax is due.
The four obligations, and what each one is charged on
Federal business tax sounds like one bill. It is four machines on different clocks, each charging a different base.
Income tax is charged on business profit, however your entity is classified. Self-employment or employment tax sits on earnings from work, so budgeting for income tax alone leaves you short by that layer.
Estimated payments collect the same liabilities during the year. Information reporting covers payments you make to other people.
Four obligations called tax
Obligation
- Income tax
- Profit
- Employment taxes
- Earnings from work
- Pay-as-you-go
- Same liabilities, collected early
- Information reporting
- Payments to others
Charged on
- Income tax
- Profit seen too late
- Employment taxes
- Income tax assumed to be all
- Pay-as-you-go
- Nothing set aside
- Information reporting
- Treated as administrative
What goes wrong
- Income tax
- Employment taxes
- Pay-as-you-go
- Information reporting
Each obligation has its own due dates and its own penalty.
Profit comes out of the books
Tax follows profit, and profit is whatever your bookkeeping says it is. Counting a sale when you invoice or when the money arrives changes which year it lands in, and a purchase with a long life is written off over years.
Paying through the year: estimated tax and the safe harbor
The federal system collects as the money is earned. An owner without wages has to start the payments.
- Estimate the year's total federal liability, including income tax and self-employment tax.
- Split it across four datesmid-April, mid-June, mid-September and mid-January.
- Check the safe harbor. Paying 90 percent of this year's tax or 100 percent of last year's avoids the underpayment penalty.
- Review in June and again in the fall, while you can still change a payment.
The IRS estimated taxes page carries the current dates, payment options and safe harbor rules. Missing a payment costs interest plus a penalty counted from each due date, and both apply whether or not you settle in full the next April.
Payroll starts a second machine
The moment you have employees, a shorter cycle begins. You withhold from each paycheck, deposit on a schedule, file Form 941 quarterly, and issue W-2 forms in January.
The payroll cycle
- Calculate and withhold from pay
- Deposit withheld amounts on schedule
- File periodic returns
- Produce year-end statements
Form 941 is due by the last day of the month after each quarter, so April 30, July 31, October 31 and January 31 for a calendar-year employer. Federal unemployment tax is reported once a year on Form 940.
Withheld money is not the business's money. It was taken from an employee for the government, and covering a shortfall with it can reach individuals through the trust fund recovery penalty, not just the entity.
Employee or contractor is decided by the working relationship, not by the contract. Errors are usually discovered across several years at once, so the cost compounds.
Payments to contractors: Form 1099-NEC
A business that pays an independent contractor $600 or more during the year generally files Form 1099-NEC for that person, with a copy to the IRS. The $600 is the standard threshold, and each year's rules sit on the IRS page.
The work happens before January. Collect a Form W-9 before the first payment, because chasing a missing taxpayer identification number after the year closes is the whole difficulty of this obligation.
Where to check the numbers for the year you are filing
Rates, limits and standard figures belong to a specific tax year. Forms get revised, and a treatment of a category can change with legislation.
The IRS publishes year-specific material for businesses and self-employed taxpayers at its small business and self-employed center, organized by topic.
A figure without a tax year attached is not one you can act on.
Never carry a number from last year's return into this year's decision without checking it, and never take a figure for a real decision from a source that does not name its tax year.
Common questions
Which return do I file as a single-member LLC?
By default you are ignored for federal tax, so profit goes on Schedule C of your Form 1040, with self-employment tax on Schedule SE. Form 2553 switches that to S corporation treatment.
When are estimated payments due?
There are four dates for a calendar-year taxpayer: mid-April, mid-June, mid-September and mid-January. A date that falls on a weekend or holiday moves to the next business day.
Does an extension give me more time to pay?
No. An extension moves the filing date only. Interest and penalty run from the original due date on whatever is still unpaid.
What if I misclassified a worker?
You can owe the employment taxes that should have been withheld and paid, plus the employer share and penalties, and the exposure typically covers more than one year. The working relationship decides it, not the contract.
In this guide
- How federal business tax costs add up over a yearFederal business tax cost is fees, systems, your own hours and the price of mistakes, and each one grows with states, payroll and messy books.
- What a federal business tax calculator cannot see, and how to estimate anywayWhy a federal business tax calculator cannot see your entity, other income or state, and how to build an estimate you can use to set cash aside.
- Federal business tax examples: what decided each oneFederal business tax examples that turn on one decision: pass-through allocations, an unfiled S election, contractor status, nexus, and a missing mileage log.
- Federal business tax mistakes: nine practical fixesFederal business tax mistakes often start with stale records, missed estimates, unclear entity status, or ignored notices. Nine fixes show what to check.
- How to vet a federal business tax preparer's credentials and who signs your returnUse this to check a business tax preparer's credentials, who signs the return, what a good service refuses, and where a federal-only practice runs out.
- Federal business tax rules: the sections behind a returnThe federal business tax rules that govern a return, by name: IRC sections, Treasury regulations, the IRS forms they land on, and how to check the year.
- Federal Business Tax Review: Six Return Tie-Outs Before SigningA federal business tax review can be a mechanical tie-out: reconcile return totals to books, bank activity, payment records, and carryovers before signing.
