As a small business owner, you wear many hats. From the president of the company to the supply clerk, there is always something else you need to accomplish. One of your most daunting tasks might be donning your tax accountant hat. You want to pay the taxes you owe as a small business owner but not overpay them. That’s why it is important to be aware of the various small business tax forms.
Since the tax laws seem to change every year and items you can deduct one year are no longer deductible the next, you need to stay on top of your tax forms and filings. You don’t want to make any mistakes that will cost you money and time in the future. The Internal Revenue Service (IRS) doesn’t offer you a steep learning curve. Here are four specialized IRS small business tax forms. Being knowledgeable of these small business tax forms will help save you time and money.
4 Small Business Tax Forms
There are going to be forms that you find yourself constantly filling out and others that you never see. In many cases, the forms you fill out are based on the type of business and your current employees. However, there are four small business tax forms from the IRS that are actually catered to smaller businesses. These small business tax forms include:
- Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts
- Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts
- Form 8283, Noncash Charitable Contributions
- Form 8606, Nondeductible IRAs
IRS Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts
The first of the small business tax forms is IRS Form 2210. Once a quarter, every three months, you prepay taxes as a business owner. You use the information you have available to determine how much you owe and send it to the IRS. However, sometimes, the amount you sent in each quarter ends up being less than you owe. When that happens, you have to pay a penalty for not preparing enough in taxes.
This small business tax form helps you determine how much that penalty is going to be. However, you don’t need to figure out the penalty because the IRS will figure it for you; however, some small business owners want to know now so they can go ahead and pay the penalty.
Who Is Responsible for Paying the Underpayment Penalty?
Even if you made timely estimated payments, you may need to pay the penalty if the estimated payments were lower than the following:
- 90 percent of your 2019 tax burden
- 100 percent of your 2018 taxes. Please note, that your 2018 taxes must cover a 12-month period.
In some cases, such as high-income earners and fishermen and farmers, the percentages are figured in a different amount. Here are those percentages:
- Fishermen and Farmers: You qualify as a fisherman or farmer if more than two-thirds of your income comes from these pursuits. When you qualify, you change 90 percent of your 2019 taxes to 66 2/3 percent.
- High-income earner: If your 2018 adjusted gross income (AGI) was more than $150,000 or more than $75,000 if you filed as married filing separately, then you would change 100 percent of your 2018 taxes to 110 percent of them.
You make four tax payments a year as a small business, and the penalty is figured on each payment and not the entire year, making it possible to have a penalty due on one or two payments but not on the others. You owe a penalty even if later payments bring you up to where you need to be for the entire year.
It’s also possible to owe a penalty for one of the payments when you receive a refund of taxes paid for the year. Sometimes, you can use an annualized income installment method to abolish or minimize the amount of penalty that you pay.
Exceptions to the Penalty
There are two exceptions to the penalty, and if you meet one of them, you aren’t required to pay. Here are the exceptions:
- You didn’t owe taxes in 2018. You were a U.S. citizen or resident alien during the period. Your 2018 tax forms covered the full 12 months.
- If you subtract the amount of withholding tax that you paid from the taxes on your 2019 form and it equals less than $1,000.
IRS Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts
IRS Form 5329 is one of the small business tax forms that focus on retirement. Most retirement plans and payments to those plans are made before tax is applied to your earnings. However, in some cases, you may owe taxes or a penalty on these accounts. The IRS Form 5329 is used to notify the IRS that you own a retirement plan or ESA and owe 10 percent for early withdrawal or some other penalty in relation to the retirement plan or ESA.
Who Is Responsible for Paying the 10 Percent or Other Penalties?
There are several conditions that you might meet that would require you to pay the 10 percent or one of the other penalties. If you’re unsure, you need to talk to a tax professional. Here are a few conditions when you definitely need to file Form 5329:
- If you took money out of your Roth IRA, you need to submit the form if you meet one of the following: the figure on line 25c of Form 8606, Nondeductible IRAs is greater than zero or it was a recapture disbursement for the 10 percent tax. Another instance is when the payment was used as a first-time homebuyer.
- You received an early payment on a retirement plan. Sometimes, box 7 of your Forms 1099-R will correctly reflect a one, if that happens you don’t need to file form 5329.
- If you took a payment from a qualified retirement plan and meet one of the allowable exceptions except box 7 of your Form 1099-R doesn’t reflect the exception or the exception only applies to a portion of the withdrawal.
- You took a payment from a Coverdell ESAs, QTPs, or ABLE accounts and it was considered taxable.
- You made contributions in excess of the 2019 maximum to your IRAs, Roth IRAs, Coverdell ESAs, Archer MSAs, HSAs, or ABLE accounts. You might also have taxes due from excess contributions on line 17, 25, 33, 41, or 49 of your 2018 Form 5329 of your 2018 taxes.
- If you have a qualified retirement account, there may be a minimum withdrawal amount, and if you don’t meet it, you get hit with taxes and penalties. This can also include trusts and estates that don’t meet the minimum.
IRS Form 8283, Noncash Charitable Contributions
The next of the small business tax forms is IRS Form 8283. In today’s world, consumers are conscious of companies that give back to their local communities, such as Feed Project that donates a meal or a set number of meals for every item purchased from its company. If your company makes charitable donations of something other than cash, you may find that you need to file IRS Form 8283. This form is filed when a person or business provides a charitable donation in something other than cash and the value of the items is greater than $500.
Who Needs to File IRS Form 8283?
If you and your company have made any noncash donations over $500, you must file form 8283 for each of the donations. Sometimes, you make a group of donations that end up exceeding the $500, and you need to file a form for this group too. Sometimes, income limits result in carryover so the amount of the donation must be figured before you apply the income limits. Before you decide if you need to file Form 8283, you must make any necessary adjustments for Fair Market Value (FMV).
Fair Market Value (FMV) is the price a purchaser would willingly and happily pay and the price that you would willing sell the item for if neither of you needed to buy or sell it. Sometimes, the type of property that you donated keeps you from claiming the FMV. The amount you need to reduce the FMV is dependent upon the type of property, such as ordinary income property or capital gain property.
Business Entities That Need to File IRS Form 8283
Most businesses need to file an IRS Form 8283 if they made noncash charitable donations in a specific tax year. There are some items that are specific to the type of business that you operate. Here are some things you need to know before filing form 8283.
- C Corporations: This type of business only needs to file a Form 8283 if they claim a noncash donation of $5,000 per item or group of similar items.
- Partnerships and S corporations: These businesses need to file a Form 8283 along with Form 1065, 1065-B, or 1120S if they make a donation in excess of $500. If the donation of an item or group of similar items exceeds $5000, they must fill out Part B of Form 8283. Once you’ve filed, you must give a completed copy of Form 8283 to each partner and shareholder.
- Partners and shareholders: If you receive a copy of a Form 8283 for a partnership or S corporation that you have a stake in, you must staple this to your personal tax return. You want to use the amount in Schedule K-1 to figure your deduction and not the amount in Form 8283.
IRS Form 8606, Nondeductible IRAs
When you pay money into a traditional IRA but you don’t take a deduction for that amount, it’s considered a “nondeductible contribution.” You do need to report this information with your tax return even if you aren’t taking a deduction. To do that, you use IRS Form 8606. This is one of the most useful small business tax forms for certain people because it can save you money at a later date.
Who Needs to File an IRS Form 8606?
There are a variety of people and circumstances that would require you to file an IRS Form 8606. Here are some of the most common situations where you need to file this form:
- In 2019, you paid a nondeductible contribution to your traditional IRA. This can include the repayment of a reservist contribution or qualified disaster.
- You received funds from a traditional, SEP, or SIMPLE IRA in 2019 and you have a more than zero basis in your traditional IRA. This doesn’t include any roll-over payments, charitable deductions, one-time withdrawal for the purpose of an HSA, characterization, conversion, or reimbursement of specific contributions.
- In the circumstance of divorce, you or your spouse might assign all of your traditional, SEP, or SIMPLE IRA in 2019 to the other spouse. If this changes the basis of the traditional IRA for your or your spouse due to an order from a divorce or separation agreement.
- In 2019, you moved funds from a traditional, SEP, or SIMPLE IRA to a Roth IRA.
- In 2019, you received funds from a Roth IRA that weren’t part of a rollover, recharacterization, or replacement of certain funds.
- You took a payment from a traditional IRA that has a basis that you inherited or you took a disbursement from an inherited Roth IRA that wasn’t a qualified payment.
This can also be one of the most confusing small business tax forms- there’s a lot to take in. Some of the words may seem like new jargon. Here are a few definitions to help you out.
This is an individual retirement account or annuity that isn’t a SEP, SIMPLE, or Roth IRA.
This is the total amount of your nondeductible contributions and nontaxable amounts included as part of a rollover. Next, you subtract all of the nontaxable distributions you received.
These are similar to traditional IRAs with some exceptions, including:
- You can’t ever deduct the payments.
- You can make contributions after you reach the age of 70 1/2.
- There isn’t any minimum distribution over your lifetime.
- You don’t include qualified disbursements in your income for tax purposes.
Need help understanding your small business tax forms? At Silver Tax Group, we understand how much you need to get done as a small business owner, and we want to offer you a helping hand. With our many years of experience, we can help you navigate the maze that is the United States tax code in any year. And we will gladly help you with your small business tax forms. Contact us today to learn more about our services.