As spring approaches, small businesses are gearing up for one of the most critical times of the year: tax season. It’s essential to begin organizing paperwork now to avoid the last-minute scramble and potential penalties. Whether you operate as a sole proprietor or a larger corporation, being aware of vital deadlines ensures compliance and peace of mind.
Key Responsibilities for Businesses with Employees
Small businesses that had employees or engaged independent contractors in 2024 have specific federal tax forms to issue. Employers must distribute W-2 forms to employees who earned wages by January 31, 2025.
For independent contractors earning at least $600 in 2024, businesses must file a federal 1099-NEC form with the IRS and provide it to the worker by January 31, 2025. The 1099-MISC form has been replaced with 1099-NEC specifically for reporting non-employee compensation.
Furthermore, small businesses that paid federal and state unemployment taxes in 2024 need to report these payments. Submission of IRS Form 940, Employer’s Annual Federal Unemployment Tax Act (FUTA) Return, is due by January 31, 2025. However, employers who met their tax obligations on time receive an extension until February 10, 2025.
Consider S Corp Election
For businesses operating as an LLC or C Corp, electing S Corp status can be advantageous for federal income tax purposes, offering benefits like eliminating double taxation. If interested, businesses with a tax year starting on January 1 must file IRS Form 2553 by March 17. Those with a different fiscal year have until two months and 15 days after the fiscal year commences.
Important Tax Deadlines to Note
Maintaining awareness of tax deadlines is crucial for small business owners to avoid penalties and ensure compliance. Here’s a comprehensive overview of significant dates:
- Sole Proprietorship Taxes: Due Tuesday, April 15, 2025, with an optional extension until October 15, 2025.
- Partnership Taxes: Due on the 15th day of the third month after the tax year ends; for partnerships with a year-end of December 31, the due date is March 17, 2025, with an optional extension until September 15, 2025. Limited partnerships must file IRS Form 1065 and Schedule K.
- LLC Taxes: Single-member LLCs are taxed as sole proprietorships; their deadline is April 15, 2025. Multiple-member LLCs are taxed as partnerships, with corresponding deadlines as noted. LLCs can opt to be taxed as C Corps or S Corps, aligning with those deadlines.
- C Corporation Taxes: C Corps using a calendar year must file IRS Form 1120 by April 15, 2025, with an optional extension until October 15, 2025. Other C Corps must file by the 15th day of the fourth month following their fiscal year-end.
- S Corporation Taxes: LLCs and C Corps electing S Corporation status must file IRS Form 1120-S by March 17, 2025, with the option for an extension until September 15, 2025, depending on their fiscal year.
What’s New for Tax Season 2025
Key changes impacting small businesses for the 2024 tax year include:
- The standard mileage rate for business use of a vehicle has risen to 67 cents.
- The IRS has postponed the requirement for payment apps and online marketplaces to issue 1099-K forms for digital transactions over $600; reporting for transactions over $5,000 will be required in 2024.
- Businesses can now only deduct 50 percent of meal expenses, with full deductions allowed for certain meals, such as those related to employee events.
- Pass-through business owners can deduct 20 percent of qualified business income for 2024 under specific income thresholds.
- The maximum deduction for qualified bonus depreciation for fixed assets is now 60 percent, decreasing annually thereafter.
- The Section 179 depreciation limit for federal purposes in 2024 is set at $1,220,000, with varying limits applicable at the state level.
Prepare Your Small Business for Tax Season
Small business owners are encouraged to begin preparations for tax season now. Being informed about essential deadlines and changes in tax legislation can lead to a smoother filing experience and help avoid last-minute stress and penalties.
