The arrival of 2025 serves as a blistering reminder that tax season is right around the corner. 

However, with some careful preparation, small business owners can file their 2025 taxes with ease, making the process silky smooth. 

While many businesses focus solely on April 15, also known as tax day, there are several deadlines throughout the year that businesses can’t afford to miss. From federal and state income tax returns to payroll taxes, planning ahead ensures your business stays compliant and avoids penalties. To help you stay organized and reduce stress, we’ve compiled some actionable tips, identified key deadlines, and assembled some preparation strategies tailored for small businesses. We’re here to help! 

Importance of Federal Income Taxes for Small Businesses

Taxes are unavoidable, at least for those interested in remaining lawful. Taxes fund critical government programs like infrastructure, education, defense, and much more. For small businesses, federal income taxes, along with other tax obligations, represent a financial and administrative challenge that can impact profitability and long-term growth.

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Federal Taxes: a Business Obligation

Every business is assigned a different tax schedule. For example, a single-member LLC will likely have a different tax schedule than an S corporation. Each business's specific tax obligations vary depending on its structure.

• Sole Proprietorships: File Form 1040 or 1040-SR with a Schedule C (or Schedule F for farms).
• Partnerships: Submit Form 1065 and pass income through to partners who file individually using Form 1040 and Schedule E.
• C corporations: File Form 1120 and are taxed directly on business profits.
• S corporations: File Form 1120-S as an information return, passing income to shareholders who report it on their personal taxes.
• Limited Liability Companies (LLCs): Filing requirements depend on whether the LLC is taxed as a sole proprietorship, partnership, or corporation.

The Burden of Federal Taxes

For small businesses, taxes are more than just a financial obligation — they’re a significant administrative burden. According to a 2024 NFIB Tax Survey, 88% of small business owners reported federal income taxes as a challenge due to their complexity. 

And more than seven years after it was enacted, more than half of respondents were still not familiar with the 20% small business deduction that was included in the Tax Cuts and Jobs Act (TCJA) in 2017. These challenges divert resources away from critical business activities, like hiring employees, investing in growth, and adapting to changing market conditions.

The unpredictable nature of small business profits further complicates tax planning. Many businesses rely on strong profits during good years to offset challenges during leaner periods. Further complicating manners is that many small businesses are earning less than they once did, making tax obligations even more daunting. According to the Biz2Credit Small Business Earnings Report, through the first 11 months of 2024, small businesses had average monthly earnings of $86,809, which is $64,108 lower than 2023. 

The Role of Taxes in Business Success

Taxes influence everything from cash flow to investment opportunities, underscoring the importance of careful planning. Business owners who understand their tax obligations, take advantage of deductions, and maintain accurate records are better positioned to navigate the complexities of federal income taxes.

Taxes as a Driver of Economic Decision-Making

Tax policies influence a wide array of business decisions, including where to invest, how to structure the business, and whether to expand. For instance, high tax rates can deter investment and drive businesses to operate in the informal sector. Studies show that a 10% increase in corporate tax rates can reduce investment-to-GDP ratios by up to 2% and decrease new business formation by 1%. Conversely, reasonable tax rates incentivize formal business operations, encouraging entrepreneurship and long-term growth.

Small and medium-sized enterprises (SMEs), which contribute significantly to employment and economic growth, are especially sensitive to tax policies. Imposing excessive tax burdens on SMEs often yields minimal revenue gains but can lead to closures or shifts to the informal sector, weakening the broader economy.

For example, consider a small retail business operating in an environment where corporate tax rates are set at 35%. In addition to corporate income tax, the business faces high payroll taxes, property taxes, and various local levies. Despite generating modest revenue, these combined tax obligations consume more than 50% of the business's profits. To cope, the business owner opts to reduce inventory investments, cut employee hours, and delay plans to expand into a new location. Eventually, the tax burden becomes unsustainable, forcing the business to either shut down or move to the informal sector, where it operates without proper registration to avoid taxes altogether. This results in job losses, which affects local household income and the amount of tax contributed to the local government. With fewer formal businesses, the overall economy suffers reduced investment and growth.

Tax Complexity and Its Impact

Taxes can be rather complicated. While large corporations often have the resources to navigate intricate tax codes and take advantage of deductions, smaller businesses face higher administrative burdens. This complexity diverts time and money away from growth initiatives and can lead to unintentional noncompliance.

Tax reforms aimed at simplifying codes, closing loopholes, and reducing rates have historically sought to address these challenges. However, the success of such reforms depends on broader economic conditions and may have unintended consequences, such as shifts in labor markets or investment behavior.

Balancing Tax Burden and Opportunity

Taxes can be used as opportunities as well. Businesses that take advantage of tax credits, deductions, and allowances may reduce their obligations, provided they understand the tools that are available. For example, deductions, like depreciation or operational expenses, lower taxable income, making it easier to reinvest profits. Tax credits for activities like research and development or eco-friendly initiatives can offset liabilities, boosting innovation and sustainability. 

The IRS offers a comprehensive list of credits and deductions covering childcare, fuel, energy efficiency, and much more. If you have questions, this is a great place to start. 

Gathering and Organizing Records

Keeping accurate tax records is critical for ensuring a smooth tax filing process, maximizing deductions, and protecting your business in the event of an audit. Here's a few helpful tips on how to effectively gather and organize your tax records.

Why Receipts Matter

Receipts serve as the breadcrumbs of accurate tax reporting, providing proof of expenses that can be deducted when filing taxes, such as business purchases, charitable donations, and health care costs. Without proper documentation, you risk missing out on eligible deductions or facing challenges during an IRS audit.

Before organizing your receipts, ensure you know which are essential for tax purposes. Key categories include:

• Business Expenses: Office supplies, travel, transportation, and utility bills.
• Medical Expenses: Doctor visits, prescriptions, and medical equipment.
• Charitable Donations: Contributions to qualified organizations, whether cash or property.
• Educational Expenses: Tuition, books, and other school-related costs.
• Property Taxes and Mortgage Interest: Significant deductions for many taxpayers.

These receipts substantiate your tax deductions or credits and must be kept for as long as the IRS requires, typically three to seven years. Proper organization of tax records not only saves time but also reduces stress during tax season.

Separate Business and Personal Finances

Use a dedicated business bank account and credit card to streamline expense tracking. This separation ensures clear documentation and minimizes errors on your tax return.

Organize Early and Maintain Regular Updates

• Begin organizing receipts at the start of the fiscal year.
• Dedicate time weekly or monthly to sort and file new receipts.
• Back up your records digitally to prevent loss.

Choose a Storage System 

For physical storage, use labeled file folders, expanding files, or envelopes for paper receipts. For digital records, scan paper receipts and store them in cloud storage or accounting software. Digital formats make it easier to retrieve and share records with your tax preparer.

Categorize by Expense Type

Sort receipts into categories, like office supplies, travel, meals, or charitable donations. Align categories with how they appear on your tax return for straightforward filing.

Regularly Review and Purge Records

Annually review your records to ensure they are up-to-date and compliant with IRS guidelines. Dispose of receipts that are no longer needed, typically after three years, unless specific circumstances require longer retention.

Leverage Technology

Technology can help simplify recordkeeping. Consider utilizing a small business tax filing software platform when completing taxes. Additionally, workforce management software, like OnTheClock, can help you consolidate your time tracking, scheduling, and payroll processes into one platform, saving you time and reducing the risk of errors.

Finding the Right Tax Form

When it’s time to file your federal income taxes, it’s important to know which tax form your business needs. The IRS form you’ll use depends on how your business is structured. Here's a breakdown by business type to help you file your taxes with confidence.

Sole Proprietors

If you’ve opted to keep things simple as a sole proprietor, you’re in luck. Filing taxes for a sole proprietorship is the easiest of all business structures. Freelancers, gig workers, and independent contractors typically fall under this category. As a sole proprietor, you and your business are considered one entity. You’ll report your business income and expenses on Schedule C, which you file with your Form 1040 individual income tax return. All your business tax deductions are taken on your personal return, and the business itself isn’t taxed separately.

Have multiple businesses? No problem — just file a separate Schedule C for each one. If you own a farm, use Schedule F instead.

C Corporations

For C corporations, filing is a bit more complex. C corps file their taxes using Form 1120. Unlike sole proprietors, a C corp files its taxes separately from the personal income tax returns of its owners or shareholders. C corps face double taxation — the corporation pays taxes on its earnings, and shareholders pay taxes on dividends. Additionally, Form 1120 requires detailed financial reporting, including a balance sheet for the start and end of the tax period.

Partnerships

Partnerships share tax responsibility among the partners. The business itself doesn’t pay taxes directly. Instead, partnerships file taxes using Form 1065, which details the business’s net income and other tax information. Each partner receives a Schedule K-1, outlining its share of the income, losses, and deductions. Partners then report this information on Schedule E, Part II of their Form 1040 individual tax return.

S Corporations

S corporations offer a unique hybrid structure. While they function similarly to C corps, their profits and losses "pass-through" to shareholders to avoid double taxation. S corps file taxes using Form 1120-S, and shareholders report their share of income or loss on their personal returns. This setup lets S corps maintain the benefits of incorporation while avoiding the tax burden of a C corp.

Nonprofit Organizations

If your organization operates as a nonprofit, you’ll file Form 990. This form provides information about your nonprofit’s income, expenses, and balance sheets as well as its officers and funding sources. If you’re paid by your nonprofit — for example, as an employee — you’ll receive a Form W-2 to report your earnings on your personal tax return.

LLCs

LLCs offer flexibility when it comes to taxes. If you’re the sole owner, you’ll file Schedule C, just like a sole proprietor. For multimember LLCs, you can choose how you want to be taxed:

• As a C corp, using Form 1120;
• As an S corp, using Form 1120-S; and
• As a partnership, using Form 1065. 

The choice is yours, so consider which structure offers the best tax advantages for your situation.

Filing Deadlines for Business Taxes

The IRS sets specific deadlines based on your business structure. While there are numerous deadlines sprawling throughout the tax code, here are some of the most common small business tax filing deadlines for 2025. 

How to Pay Small Business Taxes 

Taxes that aren’t paid on time result in penalties. Fortunately, there are several secure and convenient ways to make these payments. Here’s a breakdown of your options:

1. Electronic Federal Tax Payment System (EFTPS): The EFTPS is a free and secure online service provided by the U.S. Department of the Treasury. It’s available 24/7 and allows businesses to pay various taxes, including estimated taxes, corporate taxes, payroll taxes, self-employment taxes, and excise taxes. The EFTPS is an all-in-one solution that allows businesses to pay multiple tax types in one place. Business owners may schedule, modify, or cancel payments up to a year in advance and gain access to 16 months of payment history. Transactions are supported through government-grade cybersecurity protections.

   To use the EFTPS, visit https://www.eftps.gov/eftps and follow the enrollment steps. If you’ve already received an employer identification number (EIN), you may be preenrolled and can request a PIN to finalize your setup.

2. Electronic Funds Withdrawal (EFW): This option is available if you file your federal taxes electronically using tax preparation software or a professional. You can authorize a direct withdrawal from your bank account when e-filing.
3. Debit or Credit Card Payments: Paying taxes via Visa, Mastercard, or Discover is another option, though a processing fee applies. While this fee may be tax-deductible, it’s important to factor it into your costs.
4. Bank Wire: If you need to make a same-day payment, the IRS accepts bank wires. Contact your financial institution for details on fees and availability.
5. Check or Money Order: You can mail your payment to the IRS, made payable to the U.S. Treasury. Include your name, address, and phone number; EIN; tax year; and related tax form or notice number with your payment. 
6. Cash Payments: Cash payments are available at select locations. Keep in mind, cash payments can take five to seven business days to process, so they’re not ideal if you’re in a hurry. For more information on cash payments, visit this IRS website.

Benefits of a Tax Calculator

Many businesses opt to file taxes on their own; however, humans are prone to make mistakes. Therefore, a tax calculator is a powerful tool when it comes to filing taxes for small businesses. Here are a few of the benefits afforded through the use of a tax calculator. 

1. Accuracy: Tax calculators eliminate this risk of manual error by providing precise results based on the latest tax regulations. Simply input your income, expenses, and tax-saving investments, and the calculator will deliver accurate figures every time.
2. Time-Savings: Calculating taxes manually can be time-consuming, requiring careful review of formulas and tax slabs. With a tax calculator, you can determine your tax obligations in seconds. Plus, most calculators are available online, meaning you can use them anytime, anywhere, as long as you have internet access.
3. Enhanced Planning: Tax calculators don’t just compute tax liabilities; they also provide insights into your financial situation. Many tools suggest investment options to help you save on taxes and allocate your resources wisely. By planning your taxes at the start of the year, you can align your investments with your financial goals and avoid last-minute tax surprises.
4. Educational Insights: Using a tax calculator can help you understand the factors that affect your tax liabilities, such as deductions, exemptions, and tax-saving provisions. This knowledge empowers you to make smarter financial decisions throughout the year.
5. Data Security: Unlike paper-based calculations, which risk exposure to unauthorized access, online tax calculators ensure your data remains secure. Your financial details are processed confidentially, reducing the chance of misuse or fraud.
6. Cost-Effective Solution: Most tax calculators are free to use, making them an accessible tool for anyone. Whether you're a seasoned entrepreneur or a first-time taxpayer, a tax calculator provides a simple and cost-effective way to stay compliant and maximize savings.

Those Who Fail to Plan Are Planning to Fail

Tax season may feel overwhelming, but with proper planning and organization, small business owners can navigate it confidently and efficiently. By understanding your obligations, keeping accurate records, and staying on top of important deadlines, you can turn a stressful time into an opportunity to set your business up for success. 

Tax data doesn’t just materialize out of thin air. That information is the result of meticulous scheduling, time tracking, and payroll processes. OnTheClock offers you the ability to track all three of these metrics in one platform. Visit www.ontheclock.com to discover the transformative benefits of our software! 

Proactive tax preparation not only keeps you compliant but also supports your long-term growth and financial health. Here’s to a smooth and successful 2025 tax season!