You might think from the title of this blog that the IRS has an easy-to-find list of the financial records that small businesses are required to keep. Ha! Nothing is that easy with IRS.
The answer to the question in the title is: “It depends on the type of small business you own.” So, you first need to examine your business’s tax filing requirements and then consider which records the business needs to be keeping.
Tax Filing Depends on Corporate Structure
Solo business: Do you own a sole proprietorship? If you do, you must file a personal income tax return. The tax forms you might need include Form 1040, Schedule C and Schedule SE for self-employment income, and Form 941 or Form 944 for Social Security taxes, Medicare taxes, and income tax withholding.
Partnership: If your company is a partnership, then the partnership must file an information return annually that includes the partnership’s revenues, expenses and income. The partnership itself does not pay taxes because each of the partners pay taxes on the income they gained via their ownership of the partnership. The partnership must file Form 1065, while the individuals in the partnership are obliged to file the same individual tax forms that sole proprietors file.
C-Corporation: Is your small business a C-corporation? If it is, your corporation must pay corporate taxes on its profits. The shareholders pay taxes only on the dividends that the corporation makes to them. If you are an employee of the corporation, you also have to pay income taxes on whatever wages the corporation pays you. The corporation must use Form 1120 for income tax and Form 1120-W for estimated taxes. Shareholders are required to use the same personal income tax forms that sole proprietorships use.
S-Corporation: S-corporations are taxed much like partnerships, in that they generally do not pay taxes directly on their income, but they do file informational returns with the IRS. The shareholders of the corporation each pay income taxes on their pro rata share of the corporation’s profits. The S corporation must use Form 1120S to report the taxes it owes.
Briggs Law: Where Can I Get More Info on Corporate Taxes?
Publication 583, “Starting a Business and Keeping Records,” is the best source for information on what tax forms the IRS requires for small businesses. Other beneficial publications are Publication 334 for sole proprietorships, Publication 541 for partnerships, Publication 542 for corporations, and Form 2553 and Form 1120S for S corporations.
Because different kinds of small businesses need to file different tax forms, the financial records they need to keep is also different. However, the IRS clearly states in Publication 583 that all small businesses must keep the supporting documents used to compile the information listed on the tax forms.
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