The basics of filing your business taxes for 2021
To start, all domestic corporations must file an income tax return, even if there was no taxable income. Every domestic partnership must file Form 1065, unless it neither receives income nor incurs any expenditures treated as deductions or credits for federal income tax purposes (few exceptions may apply).
There are deadlines for filing Form 1120 based on your company’s tax year.
A company that files late may be subject to penalties and interest.
Helpful Tip: The IRS now has an online tax calendar. Set up important reminders here.
There are specific filing requirements for US businesses with one or more foreign shareholders or partners.
A domestic company that is 25% foreign-owned or a foreign corporation doing business in the U.S. must file a Form 5472 or face steep penalties.
A business is “foreign-owned” if a citizen or organization of a foreign country owns at least 25% of its total voting power or total classes of stock—directly or indirectly—of a corporation or disregarded entity (LLC).
Helpful hint: Consult legal professionals on whether you need to file. Contact a tax expert to help you file correctly and on time.
You may owe state tax even if you had no taxable income
Businesses incorporated in Delaware are required to file a franchise tax return and pay an annual franchise tax. The due date is March 1st. A tax professional can help you determine the proper method to calculate your tax and minimize your tax liability.
The annual minimum tax for any corporation doing business in California is $800.
Helpful Tip: In Delaware, calculate what you owe and pay it online (by March 1) using a franchise tax calculator.
What Credits + Deductions are available to small businesses and startups this tax season?
This information can be overwhelming for the uninitiated or anyone with a life! Consult your tax advisor on a tax strategy that meets your business and life goals.
Helpful Tip: Ask your tax advisor about the employee retention credit and R&D Credit; deductions for cash charitable contributions in 2021; 100% meal deductions in 2021 and 2022; net operating loss (NOL) carrybacks.
Remember that tax credits and tax deductions affect your tax bill differently.
Tax credits reduce your tax liability dollar-for-dollar. Most tax credits are non-refundable (they cannot reduce your tax bill below zero) but refundable tax credits can put cash in your pocket. The research & development credit may even be applied to offset employer payroll tax for qualifying startups. Tax deductions of ordinary and necessary business expenses reduce taxable income.
Other recent tax changes you need to know
Individuals can deduct 20% of their Qualified Business Income from certain pass-through entities (i.e., partnerships, S corporations) up to $329,800 (married filing jointly) or $164,900 (single filers). The QBI deduction does not apply equally to service businesses.
For those who received Child Tax Credit payments in 2021, watch for IRS Letter 6419 that shows the total amount received in advance Child Tax Credit payments. You’ll want to compare this with the child tax credit you qualify for because you may need to repay the excess.
The total amount of stimulus payments received reduces your Recovery Rebate Credit. Look for IRS Form 6475 with the total amount of stimulus payments and Plus-Up Payments received in 2021.
Taxpayers who do not itemize their taxes can take a charitable deduction of up to $600 for married filing jointly and $300 for everyone else.