Seeing businesses grow, especially your own, can be an empowering feeling. However, tax season can be an extremely stressful.
Especially for new business owners, the tax filing process can seem extremely complicated, especially when trying to understand how the process works or when the business is newly registered in the USA.
The positive side is that the filing process isn’t complicated or stressful. After being organized, the required documentation is submitted, and your filing time is well guided, the process is actually pretty simple.
This guide is prepared in a detailed manner, aimed to simplify the process from preparing your financial records to filing the necessary forms and making sure to eliminate mistakes that may cost you.
The Importance of Your Initial Tax Filing
Filing taxes does not only comply to legally required criteria, establishing the credibility and financial responsibility as a business are even more crucial.
Your first business tax return is important because it sets the tone for the years that follow. The IRS and the state would use this to assess how your company is performing and the compliance level.
Errors like value misreporting, missing deadlines, and the mixing of business and personal expenses would lead to penalties and restrictions on future filings.
From the credibility of the business and tax perspective, the following are the benefits of accurate tax filings:
- Improve range of reputational relationships like banks, investors, and processors like Stripe and PayPal.
- Business in good standing position with state and federal agencies.
- Eligibility for loans, grants, and credit.
Your first filing is the foundation of your long-term financial health.
Step 1: Organize Your Financial Records
Your business finances have to be organized. The value of clean bookkeeping cannot be overstated in the filing process.
Begin by reviewing and reconciling all your records for the year for tax purposes. That means all your records need to include:
- Bank and credit card account statements
- Issued customer invoices
- Business expense receipts
- Payroll information
- Profit and loss statements
- Balances sheets
In addition:
- Automate your bookkeeping and account transaction categorizations with programs like QuickBooks, Wave, or Xero.
- Keep and maintain separate bank accounts for business and personal finances.
- Digitally archive all your receipts and invoices for the last 3 to 7 years.
Note: Poor bookkeeping is a leading cause for a small business tax overpayment and lost deductions. Take time to organize your books. It will save you more time and money afterward.
Step 2: Determine Your Business Structure and Tax Classification
The way your business is structured determines how your taxes are filed and which forms you’ll use. If you’re operating in the U.S., you’ll typically fall under one of these categories:
| Business Type | Tax Form to File | Taxed As |
| Sole Proprietorship | Schedule C (Form 1040) | Personal income tax |
| Single-Member LLC | Schedule C (Form 1040) | Pass-through to owner |
| Multi-Member LLC | Form 1065 + K-1s | Partnership (pass-through) |
| S Corporation | Form 1120-S + K-1s | Pass-through with salary option |
| C Corporation | Form 1120 | Separate corporate entity |
Understanding this classification is essential because it affects:
- How much tax you’ll pay
- What deductions you can claim
- How you handle self-employment tax
- Whether you qualify for certain tax credits
An example of this is Bizstartz where non-U.S. Entrepreneurs opt for the Single-Member LLC structure. This is a “disregarded entity” for tax purposes meaning income “passes through” to the owner and shows up on the owner’s personal tax return.
An LLC with multiple owners is automatically treated as a partnership unless another option like S-Corp taxation is elected.
📌 Pro Tip: Always consult a tax professional to choose the optimal tax position before filing. It’s best to understand the how the position affects net income.
Step 3: Choose the Right Accounting Method
Your accounting method controls when income and expenses are recorded. The two main types are:
1. Cash Method: Income and expenses are recorded when money is received or paid.
→ This is best for small businesses, freelancers, and service-based LLCs.
2. Accrual Method: Income is recorded when earned and expenses when incurred, regardless of payment.
→ This method is used by larger companies with inventory, or more complex transactions.
Once you choose an accounting method, you are expected to follow it consistently year after year, unless changed with IRS approval.
The cash method of accounting is simpler, more intuitive, tax-efficient, and very preferred by new business owners, particularly by non-U.S. residents with new LLCs.
Step 4: Complete the Appropriate Tax Forms.
Now that you’ve organized your documents, classified them, and kept all your records for the year, you can proceed to actually file your forms. Depending on what type of business entity you have, the requirements for filing may differ, but generally you will:
1. Fill your biz info: Name, address, EIN, and classify your business entity.
2. Report your income: Total sales, service fees, and any other forms of revenue earned.
3. List your business expenses: Advertising, software subscriptions, business travel, rent, utilities, professional services, etc.
4. Report your business deductions: Common deductions to track are depreciation, startup costs, and home office.
5. Report any tax credits, such as the Qualified Business Income (QBI) deduction for pass-through entities.
If you have employees,
- Fill W-2 and 1099-NEC for contractors.
- Report employment taxes using 941 or 940 for unemployment tax.
Once you’ve completed all the required forms and schedules, take time to review them. Mistakes can lead to processing delays or trigger an audit. Even minor mistakes, such as an incorrect EIN or misreported expenses, can create problems.
Step 5: Know About Estimated Taxes and When to Pay Them
The IRS requires you to make quarterly estimated tax payments (Form 1040-ES) if you think your business will owe more than $1,000 in tax for the year.
These payments are generally due on:
- April 15
- June 15
- September 15
- January 15 of the following year
Even if you file your tax return on time, you will face penalties for not making estimated payments.
As a first-time filer you should probably:
- Figure your yearly income and save about 25-30% of your profits for taxes.
- Use accounting programs to help you, or work with a tax professional to help you determine your quarterly payments.
- Save all your tax payment receipts.
Step 6: File and Pay on Time
In the U.S, business taxes are due on March 15 for S Corps and partnerships, and on April 15 for C Corps and sole proprietorships.
To file for extensions, you can use:
Remember, extensions give you more time to file, not more time to pay. You have to estimate and pay what you owe on or before the deadline to avoid interest and penalties.
💡 Example: You owe 2,000 dollars in taxes and you wait to pay the taxes after the deadline, you will owe interest and late-payment penalties.
Step 7: Pay taxes and submit you return
Once you you filled the forms:
- Are you filing taxes electronically? You can use the IRS e-file or the tax preparer’s software.
- Pay taxes due using IRS Direct Pay, EFTPS, or for non-residents, wire transfer.
- Make sure to save a record of the filing and payment confirmation
If you don’t the full amount due, interest and penalties will still accrue until the IRS payments are complete. You can apply for an IRS installment payment plan.
Step 8: Keep Organized and Audit-Ready
Once you file your taxes, you should keep records and track:
- Tax returns and schedules
- Proof of payments, receipts, and invoices
- Payroll documents and contractor records
- Bank statements and financial reports
Although the IRS usually audits your returns within a three-year-window, they can do so for longer if they identify you as underreporting. For this reason, the safest option is to keep records for a figure of 7 years.
An internal review may help you in:
- Finding out if you accurately maximized your deductions.
- Reconciling your bank and reported income for the period to confirm your income reporting consistency.
- Determining how you will make next years’ taxes better for you.
Mistakes to Avoid as a First-Time Filer
- Not separating your business and personal expenses. Always use a dedicated business account.
- Not making estimated payments for the quarter which may result in penalties.
- Choosing the correct business entity as your business structure will dictate the taxes you will pay.
- Filing your taxes past the deadline will result in penalties.
- Ignoring state or local taxes as separate filing may be required in states like California, Texas, and New York.
- Missing records and receipts can result in legitimate deductions and should be replaced as poor recordkeeping.
Avoid these issues by automating reminders, setting up a tax calendar, and using reliable accounting software or professional services.
Step 9: Collaborate With a Tax Specialist or Business Formation Professional
Although it’s possible to do your own taxes, first time business owners gain from having their own professional help.
Here’s what a tax professional or business formation service like Bizstartz can help you do:
- Use the right tax forms.
- Identify potential industry-specific deductions and credits.
- Accurately file your taxes on both federal and state levels.
- Assist U.S. tax residents to fulfill foreign tax compliance and treaty benefits.
Think of hiring a professional as an investment. They could save you a lot more than you will pay them in taxes and other penalties.
Step 10: Keep on Planning for the Following Year
After filing your first taxes, you could plan for the next tax season.
- Identify what worked and what didn’t.
- Schedule quarterly reviews to update your books.
- Revise your tax plan every year as your company expands.
Having a solid system in place will make the tax filing process significantly easier, and the first year is where that system begins.
Conclusion
Truly, filing business taxes for the first time is an important step in your journey as a credible and responsible entrepreneur.
Being organized, maintaining good records, and knowing filing requirements will help you file your first return confidently. Whether you’re a U.S. citizen, or an international founder running a U.S. LLC, these steps will help you avoid crises during tax season.
And if you’re not sure about something, don’t try to handle it by yourself.
Bizstartz can assist you in bookkeeping, setting up EIN, applying for ITIN, and filing U.S. taxes to keep your business compliant and profitable.
