Dealing with tax forms is an important part of running a business. Handling tax forms properly maintains compliance with government regulations and tax laws, which helps businesses avoid legal repercussions—such as penalties and audits—and maintain a reputable standing with tax authorities. In fiscal year 2022, US businesses paid $424.7 billion in corporate income taxes.

Tax forms offer businesses a detailed snapshot of their financial health, which can help with planning and resource allocation. Businesses can use these forms to gain insights into revenue streams, expenditure trends, and potential tax liabilities. This helps improve financial performance and guide long-term business planning.

Below, we’ll cover the types of tax forms and best practices businesses can follow to manage these forms.

What’s in this article?

• Types of tax forms for businesses
  
• Income tax forms
  
• Employment tax forms
  
• Estimated tax forms
  
• Self-employment tax forms
  
• Excise tax documentation
  
• Best practices for managing tax forms as a business
  

Types of tax forms for businesses

The IRS requires businesses to file various tax forms depending on their location, structure, operations, and financial activities. Here are some common forms required for many types of businesses:

Income tax forms

• Schedule C (Form 1040): Sole proprietors and single-member limited liability companies (LLCs) use Schedule C, Profit or Loss From Business, to report their business income and expenses. The form is filed as part of their individual tax return (Form 1040).

• Form 1065: Partnerships use Form 1065, U.S. Return of Partnership Income, to report their annual income, deductions, gains, and losses. The partnership doesn’t pay income tax; instead, profits and losses are passed through to the partners, who report their share on their individual tax returns.

• Form 1120: C corporations, which are separate legal entities from their owners, file Form 1120, U.S. Corporation Income Tax Return, to report their income and calculate their corporate income tax.

• Form 1120-S: S corporations, which pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes, use Form 1120-S, U.S. Income Tax Return for an S Corporation.

Employment tax forms

• Form 941: The Employer’s Quarterly Federal Tax Return, Form 941, is used to report federal income taxes withheld from employees’ wages as well as the employer’s share of Social Security and Medicare taxes.

• Form 940: The Employer’s Annual Federal Unemployment (FUTA) Tax Return, Form 940, is used to report and pay unemployment taxes to the federal government.

• Form W-2: The Wage and Tax Statement, Form W-2, is provided to employees and details their annual wages and the taxes withheld from their paychecks.

• Form W-3: Employers use Form W-3, Transmittal of Wage and Tax Statements, to transmit copies of Form W-2 to the Social Security Administration (SSA).

Information returns

• Form 1099-NEC: Nonemployee Compensation, Form 1099-NEC, is used to report nonemployee compensation of $600 or more paid to independent contractors, freelancers, or other self-employed individuals.

• Form 1099-MISC: Miscellaneous Information, Form 1099-MISC, is used to report miscellaneous income such as rents, royalties, prizes, and awards.

• Form 1096: Annual Summary and Transmittal of U.S. Information Returns, Form 1096, is used to summarize and transmit different types of 1099 forms to the IRS.

Other forms

• Form 720: Businesses that owe excise taxes file Form 720, Quarterly Federal Excise Tax Return, quarterly.

• Form 2553: Businesses use Form 2553, Election by a Small Business Corporation, to elect S corporation status.

• Form 8832: Businesses use Form 8832, Entity Classification Election, to choose how their entity will be classified for federal income tax purposes.

Income tax forms

Income tax forms are used to report a business’s revenue, deductions, and tax liabilities. The form used varies based on the business structure.

Sole proprietorships and single-member LLCs

Sole proprietorships and single-member LLCs file Schedule C, a form they attach to the individual’s Form 1040. It’s the primary tool for reporting business income and expenses.

Components

• Income: Gross receipts or sales, returns and allowances, and cost of goods sold.

• Expenses: Deductible business expenses such as advertising, car and truck expenses, depreciation, insurance, legal and professional services, office expenses, rent or lease, supplies, taxes and licenses, travel, meals and entertainment, and utilities.

• Net profit or loss: The net profit (or loss) from the business, which is then included in the individual’s total income on Form 1040.

Partnerships

Partnerships file Form 1065, which provides an overview of the partnership’s financial performance for the year.

Components

• Income: Total income from operations and other income sources such as interest, dividends, or capital gains.

• Deductions: Allowable deductions including operating expenses, depreciation, and guaranteed payments to partners.

Each partner also receives a Schedule K-1, which reports their share of the partnership’s income, deductions, credits, and other items. This information is used by the partners to file their individual income tax returns.

C corporations

C corporations file Form 1120 to report income, calculate taxable income, and determine tax liability.

Components

• Income: Income from business operations, investments, and other sources.

• Deductions: Deductible expenses such as salaries, rent, depreciation, and interest.

• Tax credits: Any tax credits for which they’re eligible. These can reduce overall tax liability.

S corporations

S corporations file Form 1120-S to report their income and calculate any tax due on built-in gains or excess passive investment income. The components are similar to those of Form 1120 but with differences specific to S corporations. Similar to partnerships, each shareholder also receives a Schedule K-1 detailing their share of the corporation’s income, deductions, credits, and other items.

Employment tax forms

Employment tax forms are used by employers to accurately report and pay taxes related to their employees’ wages and benefits. These forms encompass federal income tax withholding, Social Security, Medicare, and federal unemployment taxes.

Form 941

Form 941 is used to report the following to the IRS every quarter:

• Federal income tax withheld from employees’ wages

• Employer’s and employees’ share of Social Security and Medicare taxes

• Additional Medicare tax withheld from high-income employees

This form is filed quarterly, typically by the end of the month following the end of the quarter. Its components include total wages paid, total income tax withheld, taxable Social Security and Medicare wages, Social Security and Medicare taxes owed, and adjustments for sick pay, tips, and group-term life insurance.

Form 940

Form 940 is used to report and pay FUTA tax, which funds unemployment benefits for eligible workers. This form is filed annually, typically by January 31 of the following year. Its components include total wages paid during the year, FUTA tax liability (calculated as a percentage of taxable wages), and any state unemployment taxes paid that can be credited against the FUTA tax.

Form W-2

Form W-2 is provided to each employee and the SSA. It details the employee’s annual wages and the taxes withheld. This form is issued to employees annually (by January 31 of the following year). Its components include the employee’s personal information (name, address, Social Security number), the employer’s information, total wages earned, federal income tax withheld, Social Security and Medicare taxes withheld, and state and local taxes withheld, if applicable.

Form W-3

Form W-3 is used to summarize and transmit all W-2 forms to the SSA. This form is submitted annually (by January 31 of the following year), along with Copies A of all W-2 forms. Its components include employer’s information, the total number of W-2 forms being submitted, and the total wages, taxes, and other compensation reported on the W-2 forms.

Other employment forms

• Form 944: The Employer’s Annual Federal Tax Return, Form 944, is used for small employers whose annual tax liability is $1,000 or less.

• Form 943: The Employer’s Annual Federal Tax Return for Agricultural Employees, Form 943, is used for employers of agricultural workers.

• Form CT-1: The Employer’s Annual Railroad Retirement Tax Return, Form CT-1, is used for railroad employers.

Estimated tax forms

Businesses are often required to make estimated tax payments throughout the year. This is particularly true for those not subject to regular income tax withholding. Estimated tax payments help ensure the business pays the correct amount of tax on time and avoids potential penalties for underpayment.

The amount of estimated tax a business needs to pay depends on its expected income, deductions, and credits for the year. There are two main methods for calculating estimated tax payments:

• Prior year’s tax method: The simplest method, in which the business bases its payments on the tax liability from the previous year.

• Annualized income installment method: This method is more complex but can be beneficial if the business’s income fluctuates throughout the year. This method calculates estimated payments based on the actual income earned in each period.

Form 1040-ES

Form 1040-ES, Estimated Tax for Individuals, is the form used by sole proprietors, partners in partnerships, and S corporation shareholders to calculate and pay their estimated taxes. This form helps individuals estimate their expected tax liability for the year and make quarterly payments to the IRS. It’s typically filed quarterly, with due dates on April 15, June 15, September 15, and January 15 of the following year.

Components

• Estimated tax worksheet: Guides users through the calculation process, considering income, deductions, and credits.

• Payment vouchers: Included for each quarterly estimated tax payment.

Form 1120-W

Form 1120-W, Estimated Tax for Corporations, is designed for C corporations to calculate and pay their estimated taxes. It’s similar to Form 1040-ES but tailored for corporate tax calculations, and it is also filed quarterly, with the same due dates as Form 1040-ES.

Components

• Estimated tax worksheet: Helps corporations estimate their tax liability based on projected income and deductions.

• Payment vouchers: Included for each quarterly estimated tax payment.

The IRS imposes penalties if estimated tax payments are not made on time or are insufficient.

Self-employment tax forms

Self-employment tax forms are specific to individuals who work for themselves such as freelancers, independent contractors, sole proprietors, and partners in partnerships. These forms address the unique tax obligations that self-employed individuals have, primarily focusing on Social Security and Medicare taxes.

Schedule SE (Form 1040)

Schedule SE (Form 1040), Self-Employment Tax, is used to calculate and report self-employment tax. It determines the amount of Social Security and Medicare taxes due on self-employment income. This tax is the equivalent of the combined employer and employee contributions for traditional employees. This form is filed annually with your Form 1040 individual tax return and should be filed by all individuals with net earnings from self-employment of $400 or more.

Components

• Net earnings from self-employment: Calculated on Schedule C for sole proprietors or Schedule K-1 for partners.

• Deduction for one-half of self-employment tax: This deduction helps offset the fact that self-employed individuals pay the employer and employee portions of Social Security and Medicare taxes.

• Calculation of self-employment tax: The form guides you through calculating the tax based on your net earnings and the applicable tax rates.

Schedule C (Form 1040)

Schedule C (Form 1040), Profit or Loss from Business, determines the net earnings from self-employment. Sole proprietors use this form to report income and expenses from their business activities. This form is filed annually with your Form 1040 individual tax return.

Components

• Gross receipts or sales: Total income generated by the business.

• Cost of goods sold: Direct costs associated with producing or acquiring goods sold.

• Expenses: Deductible business expenses such as advertising, rent, supplies, and utilities.

Additional considerations

• Estimated taxes: Similar to other businesses, self-employed individuals might need to make estimated tax payments throughout the year to avoid underpayment penalties. This includes income tax and self-employment tax.

• Deductions for self-employed health insurance: Self-employed individuals can deduct premiums for health insurance for themselves, their spouse, and their dependents.

Excise tax documentation

Excise taxes are levied on specific goods, services, and activities. These taxes are paid by manufacturers, retailers, importers, or customers, depending on the nature of the taxed item. The IRS requires businesses to keep accurate records of all transactions related to excise taxes and retain these records for at least three years from the date the return was filed or the tax was paid, whichever is later. Failure to file excise tax returns on time or accurately report excise tax liabilities can result in penalties and interest charges.

Form 720

Form 720, the Quarterly Federal Excise Tax Return, is the primary form used by businesses to report and pay most federal excise taxes. The form is used to calculate and report excise tax liabilities quarterly and is typically filed by the end of the month following the end of the quarter. This form should be used by businesses that manufacture, sell, or use products or services subject to federal excise taxes.

Key components

• Part I: Covers various excise taxes, such as those on fuel, environmental pollutants, air transportation, and certain communications services.

• Part II: Reports one-time taxes, such as the heavy truck highway use tax.

• Schedule A: Provides a detailed breakdown of the excise tax liabilities.

Other excise tax forms

• Form 2290: The Heavy Highway Vehicle Use Tax Return, Form 2290, filed annually for vehicles with a gross weight of 55,000 pounds or more.

• Form 8849: The Claim for Refund of Excise Taxes, Form 8849, used to request refunds for overpaid excise taxes.

Businesses might need to maintain additional records to substantiate their excise tax calculations. This can include invoices, receipts, production records, and import/export documentation.

Best practices for managing tax forms as a business

Here are best practices to help you manage tax forms for your business:

• Use technology: Take advantage of accounting software tailored to your business’s size and industry. This technology can automate data entry, calculate taxes based on current laws, and record financial transactions accurately and in real time. Advanced systems can integrate with tax filing services, which reduces the likelihood of errors and the time spent on manual entries.

• Develop a tax calendar: A tax calendar helps keep track of different tax forms and their deadlines, preparation start dates, review periods, and actions required for each form. Set up alerts for these key dates so that nothing is overlooked.

• Maintain detailed records: Keep thorough, organized records of all transactions, receipts, previous tax returns, and relevant financial documents. Use digital storage solutions with encryption and easy retrieval, which can safeguard sensitive information and simplify the process of tax preparation and audit defense.

• Understand your obligations: Stay informed about the tax forms relevant to your business structure and industry. This involves federal and state requirements as well as potential liabilities for excise taxes, employment taxes, and other specialized taxes that might affect your business.

• Consult tax professionals: Consider working with a tax professional who’s familiar with your industry and business specifics. Regular consultations can help you work through complicated tax situations, improve tax positions, and get advice on potential tax incentives and credits. This relationship should be active throughout the year—not just at tax time—to adjust strategies as laws and business conditions change.