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Income Tax Return: Things You Should Know
That time of year when businesses must file their annual income tax return. The income tax return form you use depends on how your business is structured.
Business Structure & Tax Forms:
Sole Proprietorship
- Form 1040 U.S. Individual Income Tax Return and a Schedule C (Profit or Loss from Business)
Partnerships
- Form 1065 U.S. Return of Partnership Income and Schedule K-1 (Partner’s Share of Income, Deductions, Credits, etc..)
- Form 1040 U.S. Individual Income Tax Return and a Schedule E (Supplemental Income and Loss – Part II Income or Loss From Partnerships and S Corporations)
C-Corporations
- Form 1120 U.S. Corporation Income Tax Return
S-Corporations
- Form 1120S U.S. Income Tax Return for an S Corporation and Schedule K-1 (Shareholder’s Share of Income, Deductions, Credits, etc..)
- Form 1040 U.S. Individual Income Tax Return and a Schedule E (Supplemental Income and Loss – Part II Income or Loss From Partnerships and S Corporations)
Limited Liability Co.
- Depending on elections made by the LLC and the number of members, the IRS will treat an LLC as a corporation, partnership, or sole proprietorship.
Tax time comes once a year but preparing for this event requires year-round recordkeeping. You need records to support the income, expenses, and credits you report. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Purchases, sales, payroll, and other transactions you have in your business will generate supporting documents. Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and cancelled checks. It is important to keep these documents in an orderly manner and in a safe place as the burden of proof is on you as the business owner.
Even the best recordkeeping system may not be able to withstand a natural disaster. If you lost any of your records during Hurricane Sandy, it is essential that you reconstruct them for tax purposes. The following tips may help you reconstruct your business records:
- Inventories– get copies of invoices from suppliers (should date back at least one year)
- Income– get copies of bank statements (deposits should closely reflect sales for any given period) or obtain copies of sales tax reports, payroll tax returns, and business licenses (reflect gross sales for a given period of time).
- Acquisition– if you purchased an existing business, go back to the broker for a copy of the purchase agreement which should detail what was acquired.
- Construction– if a building was constructed for you, contact the contractor for building plans or the NYC Department of Buildings for copies of any plans.
The five counties of NYC were among those declared a federal disaster area by President Obama in the wake of Hurricane Sandy. Individuals who reside or have a business in these counties may qualify for disaster assistance from the IRS. For example, you may be able to claim an unreimbursed casualty loss of business use property that was damaged or destroyed during Hurricane Sandy. If your business was impacted by Hurricane Sandy, please consult your tax professional.
Finally, in the last four months, I have processed many NYC Emergency Loan applications. While our approval ratio is high, there are a number of businesses who were declined due to insufficient cash flow. They were unable to demonstrate sufficient cash flow to repay their existing debt and the proposed new loan. It is extremely important that you accurately report your income and profits on your annual income tax return. This is the document underwriters use to determine your ability to repay debt. So, as you sit down with your accountant this year, make sure you are both on the same page with regard to the business’ needs and any required planning.
Mary Ellen Smyth is the Director of the NYC Business Solution Center in Staten Island. If you have a question or comment for Mary Ellen, drop her a note below. And, please share this blog entry with your colleagues on Facebook, Twitter, LinkedIn, email, and your favorite social media sites.