Who should prepare a small business income tax return?
There are many business entities that can be chosen in the United States. They are all taxed differently and choosing the correct type of entity is extremely important.
If you are a sole proprietorship you will file a Schedule C and your business taxes will be handled on your personal income tax returns each year. Schedule C can be handled by many tax professionals; especially if the business is relatively small and not particularly complicated.
If you are a single member limited liability company (llc) you can choose to handle your annual income taxes as if you are a sole proprietorship or you can file paperwork with the Internal Revenue Service (IRS) and be treated as a subchapter S corporation.
If you have more than one owner your business will be filing taxes as a C Corporation, a subchapter S corporation, or a Partnership. A C Corporation files Form 1120. An S corporation files form 1120S. A Partnership files form 1065. In 2016 the IRS expected 3.9 million Partnership income tax returns to be filed, 2.1 million C Corporation returns, and 4.9 million S corporation tax returns to be filed.
All three of these IRS forms are very complicated and the penalties for preparing them wrong are surprisingly high. According to the IRS instructions the total time it would take for a business owner to handle their regulatory burdens and prepare proper tax returns per year in 2016 was:
- Partnership, 290 Hours
- C Corporation, 315 Hours
- S Corporation, 245 Hours
These tax forms are so complicated that they really can only be prepared by a professional who has dedicated a large amount of time to learning how to properly prepare these forms. I have never seen anyone who is not a tax professional properly fill out one of these forms; however, one time I did encounter one person who came fairly close. I frequently look at these types of returns prepared by actual tax professionals and it is surprising how many of them are prepared wrong. It is even more surprising how many I have looked at that were prepared entirely wrong. It seems like they are often prepared by someone that does not understand how a Balance Sheet is prepared and how it effects the tax returns.
SBS CPA Group prepares a higher percentage of business income tax returns than any other firm I know of. We truly specialize in preparing business income tax returns.
I sincerely hope you call me at 260-407-5000 so that we can setup a free initial consultation!
Mike Sylvester, CPA/ABV, MBA